0001571996
2023
FY
false
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|
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|
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|
(a)
Includes related party cost of net revenue as follows: |
|
|
|
|
|
|
|
Products
|
$
|
1,634
|
|
|
$
|
1,577
|
|
|
$
|
1,493
|
|
|
|
Services
|
$
|
3,065
|
|
|
$
|
2,487
|
|
|
$
|
1,848
|
|
|
P2Y
P3Y
P1Y
P2Y
P3Y
http://fasb.org/us-gaap/2022#Revenues
http://fasb.org/us-gaap/2022#Revenues
http://fasb.org/us-gaap/2022#Revenues
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For
the fiscal year ended |
February
3, 2023
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For
the transition period from
to
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Commission
File Number:
001-37867
Dell Technologies Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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80-0890963
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or other jurisdiction of incorporation or organization) |
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(I.R.S.
Employer Identification No.) |
One Dell Way, Round Rock, Texas
78682
(Address
of principal executive offices) (Zip Code)
1-
800-
289-3355
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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of each class |
Trading
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of each exchange on which registered |
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Class C Common Stock, par value of $0.01 per share
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DELL
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New York Stock
Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ
No ¨
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes ¨
No
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ
No ¨
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes þ
No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large
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Accelerated
filer |
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filer |
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Smaller
reporting company |
☐
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Emerging
growth company |
☐
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s
assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report.
☑
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial
statements of the registrant included in the filing reflect the correction of an error to previously issued
financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant’s executive officers during the
relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐
No
þ
As
of July 29, 2022, the last business day of the registrant’s most recently completed second fiscal
quarter, the aggregate market value of the shares of the registrant’s common stock held by
non-affiliates was approximately $11.4 billion (based on the closing
price of $45.06 per share of Class C Common Stock reported on the New York Stock Exchange on that
date).
As
of March 27, 2023, there were 731,204,853 shares of the registrant’s common stock outstanding,
consisting of 257,374,103
outstanding
shares of Class C Common Stock,
378,480,523 outstanding shares of Class A Common Stock, and
95,350,227 outstanding shares of Class B Common Stock.
DOCUMENTS
INCORPORATED BY REFERENCE
The
information required by Part III of this report, to the extent not set forth herein, is incorporated by
reference from the registrant’s proxy statement relating to its annual meeting of stockholders to
be held in 2023. The proxy statement will be filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year to which this report relates.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains “forward-looking
statements”
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. The words “may,”
“will,”
“anticipate,”
“estimate,”
“expect,”
“intend,”
“plan,”
“aim,”
“seek,”
and similar expressions as they relate to us or our management are intended to identify these
forward-looking statements. All statements by us regarding our expected financial position, revenues, cash
flows and other operating results, business strategy, legal proceedings and similar matters are
forward-looking statements. Our expectations expressed or implied in these forward-looking statements may
not turn out to be correct. Our results could be materially different from our expectations because of
various risks, including the risks discussed in “Part I — Item 1A —
Risk Factors” and in our other periodic and current reports filed with the Securities and Exchange
Commission (“SEC”). Any forward-looking statement speaks only as of the date as of which such
statement is made, and, except as required by law, we undertake no obligation to update any forward-looking
statement after the date as of which such statement was made, whether to reflect changes in circumstances or
our expectations, the occurrence of unanticipated events, or otherwise.
DELL TECHNOLOGIES INC.
TABLE
OF CONTENTS
Unless
the context indicates otherwise, references in this report to “we,” “us,”
“our,” the “Company,” and “Dell Technologies” mean Dell Technologies
Inc. and its consolidated subsidiaries, references to “Dell” mean Dell Inc. and Dell
Inc.’s consolidated subsidiaries, and references to “EMC” mean EMC Corporation and EMC
Corporation’s consolidated subsidiaries.
Our
fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal
years ended February 3, 2023, January 28, 2022, and January 29, 2021 as “Fiscal
2023,” “Fiscal 2022,” and “Fiscal 2021,” respectively. Fiscal 2023 included 53
weeks, while Fiscal 2022 and Fiscal 2021 each included 52 weeks.
PART
I
ITEM 1 —
BUSINESS
Company
Overview
Dell
Technologies helps organizations build their digital futures and individuals transform how they work, live,
and play. We provide customers with one of the industry’s broadest and most innovative solutions
portfolio for the data era, including traditional infrastructure and extending to multi-cloud environments.
Our differentiated and holistic IT solutions benefit our results and enable us to capture revenue growth as
customer spending priorities evolve.
Dell
Technologies’ integrated solutions help customers modernize their IT infrastructure, manage and
operate in a multicloud world, address workforce transformation, and provide critical solutions that keep
people and organizations connected. We are helping customers accelerate their digital transformations to
improve and strengthen business and workforce productivity. With our extensive portfolio and our commitment
to innovation, we offer secure, integrated solutions that extend from the edge to the core to the cloud, and
we are at the forefront of software-defined and cloud native infrastructure solutions.
Dell
Technologies operates globally in approximately 180 countries, supported by a world-class organization
across key functional areas, including technology and product development, marketing, sales, financial
services, and services. We have a number of durable competitive advantages that provide a critical
foundation for our success. Our go-to-market engine includes a 31,000-person direct sales force and a global
network of approximately 240,000 channel partners. We employ approximately 35,000 full-time service and
support professionals and maintain approximately 2,200 vendor-managed service centers. We also manage a
world-class supply chain at significant scale with approximately $77 billion in annual procurement
expenditures and over 725 parts distribution centers.
We
further strengthen customer relationships through our financing offerings provided by Dell Financial
Services and its affiliates (“DFS”) and our flexible consumption models, including utility,
subscription, and as-a-Service models, which we continue to expand under Dell APEX. These offerings enable
our customers to pay over time and provide them with financial flexibility to meet their changing
technological requirements.
Vision
and Strategy
Our
vision is to become the most essential technology company for the data era. We help customers address their
evolving IT needs and their broader digital transformation objectives as they embrace today’s
multicloud world. We intend to execute our vision by focusing on two strategic priorities:
•Grow
and modernize our core offerings in the markets in which we predominantly compete
•Pursue
attractive new growth opportunities such as Edge, Telecom, data management, and as-a-Service consumption
models
We
believe we are uniquely positioned in the data and multicloud era and that our results will continue to
benefit from our durable competitive advantages. We intend to continue to execute our business model and
position our company for long-term success while balancing liquidity, profitability, and growth and keeping
our purpose at the forefront of our decision-making: to create technologies that drive human progress.
The
IT industry is rapidly evolving with demand for simpler, more agile solutions as companies leverage multiple
clouds across their increasingly complex IT environments. To meet our customer needs, we continue to invest
in research and development, sales, and other key areas of our business to deliver superior products and
solutions capabilities and to drive long-term sustainable growth.
Business
Model Transformation
Our
customers are seeking new and innovative models that address how they consume our solutions. In part,
customers are looking to remove unnecessary cost and complexity, align solution offerings to their business
needs, and provide consistent operations throughout their IT enterprise.
We
offer options including as-a-Service, subscription, utility, leases, loans, and immediate pay models
designed to match customers' consumption and financing preferences. We believe these options are
particularly advantageous for our customers during times of economic uncertainty as they provide financial
flexibility to further enable them to procure our solutions.
These
offerings typically result in multiyear agreements which generate recurring revenue streams over the term of
the arrangement. We expect that these offerings will further strengthen our customer relationships and
provide a foundation for growth in recurring revenue. We define recurring revenue as revenue recognized that
is primarily related to hardware and software maintenance as well as subscription, as-a-Service, usage-based
offerings, and operating leases.
As
we pursue our strategy of modernizing our core business solutions, we continue to evolve and build momentum
across our family of as-a-Service offerings under Dell APEX.
Products
and Services
We
design, develop, manufacture, market, sell, and support a wide range of IT solutions, products, and
services. We are organized into two business units which are also our reportable segments, referred to as
Infrastructure Solutions Group and Client Solutions Group.
•Infrastructure
Solutions Group (“ISG”)
— ISG enables our customers’ digital transformation with solutions that address the fundamental
shift to multicloud environments, machine learning, artificial intelligence, and data analytics. ISG enables
customers to simplify, streamline, and automate their cloud operations. ISG solutions are built for
multicloud environments and are optimized to run cloud native workloads in both public and private clouds,
as well as traditional on-premise workloads.
Our
comprehensive storage portfolio includes traditional as well as next-generation storage solutions, including
all-flash arrays, scale-out file, object platforms, hyper-converged infrastructure, and software-defined
storage. We have simplified our storage portfolio and continue to make enhancements to our storage offerings
that we expect will drive long-term improvements in the business.
Our
server portfolio includes high-performance rack, blade, and tower servers. Our servers are designed with the
capability to run high value workloads across customers’ IT environments, including artificial
intelligence, machine learning, and edge workloads. Our networking portfolio helps our business customers
transform and modernize their infrastructure, mobilize and enrich end-user experiences, and accelerate
business applications and processes.
Our
strengths in server, storage, and virtualization software solutions allow us to offer leading converged and
hyper-converged solutions, enabling our customers to accelerate their IT transformation with scalable
integrated solutions instead of building and assembling their own IT platforms. ISG also offers software,
peripherals, and services, including configuration, support and deployment, and extended warranties.
Approximately
half of ISG revenue is generated by sales to customers in the Americas, with the remaining portion derived
from sales to customers in the Europe, Middle East, and Africa region (“EMEA”) and the
Asia-Pacific and Japan region (“APJ”).
•Client
Solutions Group (“CSG”)
— CSG includes branded PCs including notebooks, desktops, and workstations and branded peripherals
including displays and docking stations, as well as third-party software and peripherals. CSG also includes
services offerings, including support and deployment, configuration, and extended warranties. Our CSG
offerings are designed with our customers’ needs in mind and we seek to optimize performance,
reliability, manageability, design, and security.
Our
commercial portfolio provides our customers with solutions centered around flexibility to address their
complex needs such as IT modernization, hybrid work transformation, and other critical needs. Within our
high-end consumer offerings, we provide our customers’ with powerful performance, processing, and
end-user experiences.
Approximately
half of CSG revenue is generated by sales to customers in the Americas, with the remaining portion derived
from sales to customers in EMEA and APJ.
Our
“other businesses,” described below, primarily consists of our resale of standalone offerings of
VMware, Inc. (individually and together with its subsidiaries, “VMware”), referred to as
“VMware Resale,” and offerings of SecureWorks Corp. (“Secureworks”). These
businesses are not classified as reportable segments, either individually or collectively.
•VMware
Resale consists
of our sale of standalone VMware offerings. Under our Commercial Framework Agreement with VMware discussed
in this report, Dell Technologies continues to act as a key channel partner for VMware, reselling
VMware’s offerings to our customers. This partnership is intended to facilitate mutually beneficial
growth for both Dell Technologies and VMware.
VMware
works with customers in the areas of hybrid and multicloud, modern applications, networking, security, and
digital workspaces, helping customers manage their IT resources across private clouds and complex
multicloud, multi-device environments.
•Secureworks
(NASDAQ: SCWX) is a leading global cybersecurity provider of technology-driven security solutions singularly
focused on protecting its customers by outpacing and outmaneuvering the adversary. The solutions offered by
Secureworks enable organizations of varying size and complexity to prevent security breaches, detect
malicious activity, respond rapidly when a security breach occurs, and identify emerging threats.
Our
offerings are continually evolving in response to customer needs. As a result, reclassifications of certain
products and services solutions in major product categories may be required. For further discussion
regarding our reportable segments, see “Part II — Item 7 — Management’s Discussion
and Analysis of Financial Condition and Results of Operations —Results of Operations — Business
Unit Results” and Note 19 of the Notes to the Consolidated Financial Statements included in this
report.
Dell
Financial Services
DFS
supports our businesses by offering and arranging various financing options and services for our customers
globally. DFS originates, collects, and services customer receivables primarily related to the purchase or
use of our product, software, and services solutions. We also arrange financing for some of our customers in
various countries where DFS does not currently operate as a captive entity. We further strengthen customer
relationships through flexible consumption models, including utility, subscription, and as-a-Service models,
which enable us to offer our customers the option to pay over time to provide them with financial
flexibility to meet their changing technological requirements. DFS funded $9.7 billion of originations in
Fiscal 2023 and maintains an $11 billion global portfolio of high-quality financing receivables. The results
of these operations are allocated to our segments based on the underlying product or service financed and
may be impacted by, among other items, changes in the interest rate environment and the translation of those
changes to pricing. For additional information about our financing arrangements, see Note 6 of the Notes to
the Consolidated Financial Statements included in this report.
Research
and Development
We
focus on developing scalable technology solutions that incorporate desirable features and capabilities at
competitive prices. We employ a collaborative approach to design and development in which our engineers,
with direct customer input, design innovative solutions and work with a global network of technology
companies to architect new system designs, influence the direction of future development, and integrate new
technologies into our products and solutions. Through our collaborative, customer-focused approach to
innovation, we strive to deliver new and relevant products to the market quickly and efficiently.
Our
software engineers are focused on developing the next generation of innovative solutions. Our software
simplifies the complex through automation, increasingly leveraging artificial intelligence and
machine-learning technology. Most of our research and development (“R&D”) expenditures
represent costs to develop the software that powers these solutions.
We
manage our R&D spending by targeting those innovations and solutions that we believe are most valuable
to our customers and by relying on the capabilities of our strategic relationships. We have a global R&D
presence, with total R&D expenses of $2.8 billion, $2.6 billion, and $2.5 billion
for
Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively. These investments reflect our commitment to R&D
activities that ultimately support our goal to help our customers build their digital future and to
transform IT.
Additionally,
we invest in early-stage, privately-held companies that develop software, hardware, and other technologies
or provide services supporting our technologies. We manage our investments through our venture capital
investment arm, Dell Technologies Capital.
Manufacturing
and Materials
We
own manufacturing facilities located in the United States, Malaysia, China, Brazil, India, Poland, and
Ireland. See “Item 2 — Properties” for information about our manufacturing and
distribution facilities.
We
also utilize contract manufacturers throughout the world to manufacture or assemble our products under the
Dell Technologies brand as part of our strategy to enhance our variable cost structure and to achieve our
goals of generating cost efficiencies, delivering products faster, better serving our customers, and
enhancing our supply chain. When using contract manufacturers, we purchase components from suppliers and
subsequently sell those components to the manufacturer. Our manufacturing process consists of assembly,
software installation, functional testing, and quality control. We conduct operations utilizing a formal,
documented quality management system to ensure that our products and services satisfy customer needs and
expectations. Testing and quality control are also applied to components, parts, sub-assemblies, and systems
obtained from third-party suppliers.
Our
quality management system is maintained through the testing of components, sub-assemblies, software, and
systems at various stages in the manufacturing process. Quality control procedures also include a burn-in
period for completed units after assembly, ongoing production reliability audits, failure tracking for early
identification of production and component problems, and processing of information from customers obtained
through services and support programs. This system is certified to the ISO 9001 International Standard
that includes our global sites and organizations that design, manufacture, and service our products.
Our
order fulfillment, manufacturing, and test facilities are also certified to the ISO 9001 International
Standard for quality management systems, the ISO 14001 International Standard for environmental
management systems, the ISO 45001 International Standard for health and safety management systems, and the
ISO 50001 International Standard for energy management systems. These internationally-recognized
endorsements of ongoing quality, environmental, health and safety, and energy management are among the
highest levels of certifications available. We also have implemented programs and methodologies to ensure
that the quality of our designs, manufacturing, test processes, and supplier relationships are continually
improved.
We
maintain a Supplier Code of Conduct, actively manage recycling processes for our returned products, and are
certified by the Environmental Protection Agency as a Smartway Transport Partner.
We
purchase materials, supplies, product components, and products from a large number of qualified suppliers.
In some cases, where multiple sources of supply are not available, we rely on a single source or a limited
number of sources of supply if we believe it is advantageous to do so because of performance, quality,
support, delivery, capacity, or price considerations. We believe that any disruption that may occur because
of our dependence on single- or limited-source vendors would not disproportionately disadvantage us relative
to our competitors. See “Item 1A — Risk Factors — Risks Relating to Our Business and Our
Industry — Reliance on vendors for products and components, many of which are single-source or
limited-source suppliers, could harm our business by adversely affecting product availability, delivery,
reliability, and cost” for information about the risks associated with Dell Technologies’ use of
single- or limited-source suppliers.
Geographic
Operations
Our
global corporate headquarters is located in Round Rock, Texas. We have operations and conduct business in
many countries located in the Americas, Europe, the Middle East, Asia, and other geographic regions. To
increase our global reach, we continue to focus on emerging markets outside of the United States, Western
Europe, Canada, and Japan. We continue to view these geographical markets, which include the vast majority
of the world’s population, as a long-term growth opportunity. Accordingly, we pursue the development
of technology solutions that meet the needs of these markets. For information about the amount of net
revenue we generated from our operations outside of the United States during the last three fiscal years,
see Note 19 of the Notes to the Consolidated Financial Statements included in this report.
Seasonality
Our
sales can be affected by seasonal trends. Within ISG, our storage sales are typically stronger in our fourth
fiscal quarter. Our sales within the Americas are typically stronger in the second and fourth fiscal
quarters, with sales in EMEA typically stronger during the fourth fiscal quarter. Historical seasonal
patterns may not continue in the future and have been impacted by, and may continue to be impacted by, the
COVID-19 pandemic, the changing macroeconomic environment, and our mix of business.
Competition
We
operate in an industry in which there are rapid technological advances in hardware, software, and services
offerings. We face ongoing product and price competition in all areas of our business, including from both
branded and generic competitors. We compete based on our ability to offer customers competitive, scalable,
and integrated solutions that provide the most current and desired product and services features at a
competitive price. We closely monitor market pricing, including the effect of foreign exchange rate
movements, in an effort to provide the best value for our customers. We believe that our strong
relationships with our customers and channel partners allow us to respond quickly to changing customer needs
and other macroeconomic factors.
We
also face competition from non-traditional IT companies, including large Infrastructure-as-a-Service
providers, that often buy their infrastructure directly from original design manufacturers. Competitive
pressures could increase if customers choose to move existing workloads to these Infrastructure-as-a-Service
providers.
The
markets in which we compete span countries around the world with customers that range from the world’s
largest corporations to small and medium-sized businesses to consumers and also includes government and
not-for-profit organizations. We believe that new businesses will continue to enter these markets and
develop technologies that, if successfully commercialized, may compete with our products and services.
Moreover, current competitors may enter into new strategic relationships with new or existing competitors,
which may further increase the competitive pressures. See “Item 1A — Risk Factors — Risks
Relating to Our Business and Our Industry” for information about our competitive risks.
Sales
and Marketing
Our
sales and marketing efforts are organized around the evolving needs of our customers. Our unified global
sales and marketing team has created a go-to-market organization that is customer-focused, collaborative,
and innovative. We generally organize our go-to-market operations with a focus on geographic and customer
segments which encompass large global
and national enterprises, public institutions that include governmental agencies, educational institutions,
healthcare
organizations, small and medium-sized businesses, and consumers.
Go-to-market
strategy
— We sell products and services directly to customers and through other sales channels, which include
value-added resellers, system integrators, distributors, and retailers. We manage our many channels to offer
a unified customer experience.
We
believe our direct business model is a significant competitive advantage and emphasizes direct communication
with customers, allowing us to refine our products and marketing programs and enabling us to successfully
navigate environments with constrained supply chains.
In
addition to our direct business model, we use our network of channel partners to sell our products and
services, enabling us to efficiently serve a greater number of customers. The Dell Technologies partner
program contributes to the development of
channel
sales by providing appropriate incentives to encourage sales generation. We also facilitate access to
third-party financing to help our channel partners manage their working capital. We believe that building
long-term relationships with our channel partners enhances our ability to deliver a high-quality customer
experience. During Fiscal 2023, our other sales channels generated approximately 50% of our net revenue.
Large
enterprises and public institutions
— For large enterprises and public institutions, we maintain a field sales force throughout the world.
Dedicated account teams, which include technical sales specialists, form long-term relationships to provide
our largest customers with a single source of assistance, develop tailored solutions for these customers,
position the capabilities of Dell Technologies, and provide us with customer feedback. For these customers,
we offer several programs designed to provide single points of contact and accountability with dedicated
account managers, special pricing, and consistent service and support programs. We also maintain specific
sales and marketing programs targeting federal, state, and local governmental agencies, as well as
healthcare and educational customers.
Small
and medium-sized business and consumers
— We market our products and services to small and medium-sized businesses and consumers through
various advertising media. To react quickly to our customers’ needs, we track our Net Promoter Score,
a customer loyalty metric that is widely used across various industries. Net Promoter Score is a trademark
of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld. We also engage with customers
through our social media communities on our website and in external social media channels.
Product
Backlog
Product
backlog represents the value of unfulfilled manufacturing orders and is included as a component of remaining
performance obligations to the extent we determine that the manufacturing orders are non-cancelable. Our
business model generally gives us the ability to optimize product backlog at any point in time, by such
actions as expediting shipping or prioritizing customer orders for products that have shorter lead times. We
ended Fiscal 2022 with elevated backlog levels as a result of industry-wide constraints in the supply of
limited-source components. During Fiscal 2023, we lowered our backlog levels across both CSG and ISG as
supply positions improved and demand declined.
Patents,
Trademarks, and Licenses
As
of February 3, 2023, we held a worldwide portfolio of 20,693 granted patents and 8,045 pending patent
applications. We continue to obtain new patents through our ongoing research and development
activities. The inventions claimed in our patents and patent applications cover aspects of our current
and possible future offerings, computer systems, software products, manufacturing processes, and
related technologies. We also hold licenses to use numerous third-party patents. Although we use
our patented inventions and license some of them to others, we are not substantially dependent on any single
patent or group of related patents. Our product and process patents may establish barriers to entry,
and we anticipate that our worldwide patent portfolio will continue to be of value in negotiating
intellectual property rights with others in the industry.
We
have used, registered, or applied to register certain trademarks and copyrights in the United States and in
other countries. We believe that Dell Technologies, DELL, Dell EMC, Alienware, and Secureworks word marks
and logo marks in the United States are material to our operations.
We
have entered into software licensing agreements with other companies. We also license certain technology and
intellectual property from third parties for use in our offerings and processes, and license some of our
technologies and intellectual property to third parties.
Government
Regulation
Our
business is subject to regulation by various U.S. federal and state governmental agencies and other
governmental agencies. Such regulation includes the activities of the U.S. Federal Communications
Commission; the anti-trust regulatory activities of the U.S. Federal Trade Commission, the U.S. Department
of Justice, and the European Union; the consumer protection laws and financial services regulation of the
U.S. Federal Trade Commission and various U.S. governmental agencies; the export regulatory activities of
the U.S. Department of Commerce and the U.S. Department of the Treasury; the import regulatory activities of
the U.S. Customs and Border Protection; the product safety regulatory activities of the U.S. Consumer
Product Safety Commission and the U.S. Department of Transportation; the health information privacy and
security requirements of the U.S. Department of Health and Human Services; and the environmental, employment
and labor, and other regulatory activities of a variety of governmental authorities in each of the countries
in which we conduct business.
Our
operations are subject to a variety of environmental, performance, and safety regulations in all areas in
which we conduct business. Product design and procurement operations must comply with requirements relating
to materials composition, sourcing, radiated emissions, energy efficiency and collection, recycling,
treatment, transportation, and disposal of electronics products, including restrictions on mercury, lead,
cadmium, lithium metal, lithium ion, and other substances. Operations may also become subject to new or
emergent standards relating to climate change laws and regulations. The amount and timing of costs under
environmental and safety laws are difficult to predict. We were not assessed any material environmental
fines, nor did we have any material environmental remediation or other environmental costs, during Fiscal
2023.
We
and our subsidiaries are subject to various anti-corruption laws that prohibit improper payments or offers
of payments to foreign governments and their officials for the purpose of obtaining or retaining business,
and are also subject to export controls, customs regulations, economic sanctions laws, including those
currently imposed on Russia, and embargoes imposed by the U.S. government. Violations of the U.S. Foreign
Corrupt Practices Act or other anti-corruption laws or export control, customs, or economic sanctions laws
and regulations may result in severe criminal or civil sanctions and penalties.
We
are subject to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act intended to
improve transparency and accountability concerning the supply of minerals originating from the conflict
zones of the Democratic Republic of the Congo or adjoining countries. We incur costs to comply with the
disclosure requirements of this law and other costs relating to the sourcing and availability of minerals
used in our products.
Environmental,
Social, and Governance
Dell
Technologies is committed to driving human progress by putting our technology and expertise to work where it
can do the most good for both people and the planet. We recognize that all of our stakeholders —
shareholders, customers, suppliers, employees, and communities — as well as the environment and
society, are essential to our business.
Dell
Technologies is committed to progressing towards the goals set forth in our plan for 2030 and beyond (our
“2030 Goals”). Our 2030 Goals represent an extension of our purpose as a company — to
create technologies that drive human progress. We are using these goals to build our impact strategies over
the next decade. Our 2030 Goals have four critical areas of focus:
•Advancing
Sustainability
— We believe we have a responsibility to protect and enrich our planet together with our customers,
suppliers, and communities. We continue to prioritize sustainability across our business ecosystem, valuing
natural resources and seeking to minimize our impact. With the power of our global supply chain, Dell
Technologies pursues the highest standards of sustainability and ethical practices.
•Cultivating
Inclusion —
We view diversity and inclusion as a business imperative that will enable us to build and empower our future
workforce and we strive to cultivate inclusion for our team members, customers, and communities. It is
essential that our workforce be fully representative of the diversity in our global customer base. Further,
we believe that diversity of leadership increases innovation and ensures that company decisions reflect a
wide variety of perspectives.
•Transforming
Lives —
We
believe our scale, support, and the innovative application of our portfolio can play an important role in
advancing fundamental human rights and addressing complex societal challenges, including improving health,
education, and economic opportunities for the underserved. We endeavor to harness the power of technology to
create a future that is capable of realizing human potential.
•Upholding
Ethics and Data Privacy —
Ethics and privacy play a critical role in establishing a strong foundation for positive social impact. We
are committed to ensuring that new talent and existing team members align with our ethical culture. We will
continue to invest in our advanced privacy governance and risk-management technology and continue seeking to
select, evaluate, and do business with third parties who share our level of dedication to ethics and
privacy.
Dell
Technologies measures progress against our 2030 Goals in our annually released reports available on our
website.
Climate
Change
At
Dell Technologies, we believe that by addressing climate change, we are demonstrating our commitment to
protect our planet and the community. We have a responsibility to manage the greenhouse gas emissions
associated with our direct and indirect footprint, and technology plays an important role in this
undertaking. We aim to achieve net zero greenhouse gas emissions across Scopes 1, 2, and 3 by 2050.
Human
Capital Management
We
are a diverse team with unique perspectives, united in our purpose, our strategy, and our culture. Our goal
is to ensure that employees of different backgrounds feel valued, engaged, and inspired to do their best
work. Through our ongoing diversity and inclusion efforts, flexible working environments, training and
development offerings, and health and wellness resources for our employees, we are striving to attract,
develop, and retain an empowered workforce. We believe the success of our commitment is demonstrated through
our employee tenure and recognition by Newsweek
as America’s Most Loved Workplace of 2022 and by Forbes
in its ranking of the 2022 World’s Best Employers.
As
of February 3, 2023, we had approximately 133,000 employees, approximately 32% of whom were located in
the United States. As a result of rapidly evolving macroeconomic conditions during Fiscal 2023, we took
certain measures to reduce cost, including limiting external hiring. Further, subsequent to the close of
Fiscal 2023, we announced to our employees reorganizations and other actions to align our investments more
closely with our previously discussed strategic and customer priorities. These actions will reduce our
employee population by approximately 5%. We are committed to supporting those impacted as they transition to
their next opportunities. Despite these difficult decisions, we continue to make investments and focused
efforts to develop and empower our employees and attract and retain talent.
We
seek to support our culture in four key focus areas:
Diversity
and Inclusion —
At Dell Technologies, we believe diversity is power. Within our 2030 Plan, one critical area of focus
— cultivating inclusion — highlights how our human capital resources are vital to our social
impact and long-term success. Cultivating inclusion is a core component of our culture, and we believe that
closing the diversity gap is critical to meeting future talent needs and ensuring that new perspectives
reflect our global customer base. We are committed to equal employment opportunity for all and upholding
ethics and integrity in all we do and will continue to pursue inclusive policies that support full-spectrum
diversity.
As
of February 3, 2023, excluding employees of Secureworks, the overall representation of employees who
self-identify as women was approximately 35%. Of our global people leaders, 29% self-identified as women. We
define people leaders as employees in a management level or executive position.
As
of the same date, our U.S. employee base was composed of employees who self-identified with the following
races and ethnicities: 63% as White or Caucasian; 15% as Asian; 10% as Hispanic or Latino; 6% as Black or
African American; 2% with two or more races; and 1% with additional groups (including American Indian,
Alaska Native, Native Hawaiian or Other Pacific Islander). Approximately 3% of our U.S. employee base did
not self-report or specify race and ethnicity status. Of our U.S. people leaders, 12% self-identified as
Hispanic or Latino or as Black or African American.
As
the composition of the workforce evolves, we recognize that companies embracing diversity and inclusion are
experiencing greater innovation, productivity, engagement, and employee satisfaction. We are committed to
increasing gender and ethnic diversity throughout Dell Technologies and, as part of our 2030 Plan, have
goals focused on this objective. We seek to achieve the following diversity goals within our workforce
(excluding employees of Secureworks):
•By
2030, 50% of our global workforce and 40% of our global people leaders will be those who self-identify as
women.
•By
2030, 25% of our U.S. workforce and 15% of our U.S. people leaders will be those who self-identify as Black
or African American or as Hispanic or Latino.
We
seek to meet these goals by:
•building
and attracting the future workforce
by investing in innovative recruiting and hiring programs intended to attract the best talent possible and
address the global technology talent gap; and
•developing
and retaining our current team members through
a supportive corporate culture focused on equity of access to career advancement and upskilling
programs.
Achievement
Through Learning, Development, and Total Rewards —
We offer a competitive and comprehensive benefits package and strive to provide the best choice and value at
the best cost. Our comprehensive rewards programs are designed to attract, reward, and retain high-quality
talent and to inspire employees to be their best and do their best work for our customers and the growth of
our business. We recognize and reward performance through awards aligned with business strategy and
individual objectives while supporting team members’ mental, physical, and financial health, and
promoting workplace flexibility and connection. Further, Dell Technologies’ focus on cultivating
inclusion is an important component of our total rewards philosophy: We believe that equal pay is a business
imperative and we are committed to it.
We
provide a multitude of programs to support employees’ career growth and development through a
centralized experience called “Build Your Career.” Through this program, we offer formal
training options, individualized development programs and sponsorship, tools for 360-degree feedback,
mentoring, networking, stretch assignments, and growth opportunities. Our tools and resources are designed
to empower and inspire employees to direct their own career paths and build a portfolio of transferable
skills for success in the technology industry. Our internal Career Hub supports employee growth by providing
personalized development suggestions, such as mentors and job opportunities, that align with their skills
and development goals. We are committed to building a diverse leadership pipeline with a broad spectrum of
skills, including the ability to lead with integrity and inspire others.
Balance
and Wellness —
Work flexibility is part of our culture and remains a significant priority for us. We have built tools and a
culture that provide choice and flexibility to employees, the majority of whom work in a hybrid environment.
Dell’s global Connected Workplace program allows eligible employees to choose from a variety of
flexible work arrangement options that best meet their needs. This program provides technologies to support
employees to excel and progress regardless of their physical location.
We
support our employees’ wellness through a comprehensive approach focused on mental, physical, and
financial health, flexibility, and connection. We provide wellness resources to help employees and their
families develop and sustain healthy habits. We further support employee wellness via regular
communications, virtual live and on-demand educational sessions, counseling and support services, fitness
and wellness challenges, voluntary progress tracking, and other incentives.
Connection
and Engagement —
We believe that employee feedback is an important part of our culture and how we drive our strategy. Through
our annual Tell Dell survey, employees can confidentially voice their perceptions of the Company and our
leadership, culture, and inclusiveness so that we can continue to improve the employee experience. We drive
further employee engagement and connection through a variety of initiatives including, but not limited to,
our team member listening strategy and our Employee Resource Groups (“ERGs”). We have a total of
13 unique ERGs that cultivate inclusion and bring many collective voices together for a greater business
impact. Our ERGs also provide personal and professional development through networking opportunities,
mentoring, volunteerism, and community involvement.
Human
Rights
At
Dell Technologies, upholding and advancing respect for the fundamental human rights of all people is core to
our business strategy, purpose, and commitment to drive human progress and create a positive and lasting
social impact. We believe everyone deserves to be treated equally with dignity and respect, and we are
committed to responsible, ethical, inclusive, and sustainable business practices. We believe in winning with
integrity, and we use training and technology to assist our team members in applying the principles of
integrity and compliance as part of everyday business transactions, activities, and decisions.
Supply
Chain Resources
We
manage our responsible business practices in one of the world’s largest supply chains, which involves
hundreds of thousands of people around the world. We continue our efforts to drive responsible manufacturing
through robust assurance practices, including human rights due diligence and environmental stewardship. We
recognize that looking after the wellbeing of people in our supply chain is important and have set goals for
our work in this area, including:
•providing
healthy work environments;
•delivering
future-ready skills development for employees in our supply chain; and
•continuing
our engagement with the people who make our products.
We
support supplier employees at all levels with training on key topics, including forced labor and health and
safety, and we continue to work with suppliers to deliver training directly to employees via their mobile
phones. Through this initiative, Dell Technologies covers the cost of developing training modules and shares
training costs with suppliers who deliver them.
Dell
Technologies works to ensure that we and our suppliers manufacture our products responsibly, in part through
our social and environmental responsibility assurance program. Through risk assessments and audits conducted
under this program, we seek to monitor factories’ adherence to the Responsible Business Alliance
(“RBA”) Code of Conduct. Audits are conducted by third-party auditors that have been trained and
certified by the RBA. The audits cover topics across five areas: labor, including risks of forced labor and
weekly working hours; employee health and safety; environment; ethics; and management systems. Through our
audit program, we aim to identify and solve concerns in our supply chain, and seek continual improvements to
address issues and enable suppliers to build their own in-house capabilities. We supplement our audits with
targeted assessments of suppliers when we identify opportunities to drive further improvements.
Our
supply chain sustainability progress is available through annual reporting on the social impact reporting
page of our website.
Corporate
Information
We
are a holding company that conducts our operations through subsidiaries.
The
mailing address of our principal executive offices is One Dell Way, Round Rock, Texas 78682. Our telephone
number is 1-800-289-3355.
Our
website address is www.delltechnologies.com. We make available free of charge through our website
our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all
amendments to those reports, as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. The information on, or accessible through, our website referred to above or
any other website we refer to in this report is not part of, and is not incorporated by reference into, this
report.
Information
about our Executive Officers
The
following table sets forth, as of March 4, 2023, information about our executive officers, who are appointed
by our Board of Directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name
|
|
Age
|
|
Position
|
|
Michael
S. Dell |
|
58
|
|
Chief
Executive Officer and Chairman |
|
Jeffrey
W. Clarke |
|
60
|
|
Co-Chief
Operating Officer and Vice Chairman |
|
Allison
Dew |
|
53
|
|
Chief
Marketing Officer |
|
Howard
D. Elias |
|
65
|
|
Chief
Customer Officer and President, Services and Digital |
|
Richard
J. Rothberg |
|
59
|
|
General
Counsel |
|
Jennifer
D. Saavedra, Ph.D. |
|
53
|
|
Chief
Human Resources Officer |
|
William
F. Scannell |
|
60
|
|
President,
Global Sales and Customer Operations |
|
Thomas
W. Sweet |
|
63
|
|
Chief
Financial Officer |
|
Anthony
Charles Whitten |
|
46
|
|
Co-Chief
Operating Officer |
Michael
S. Dell —
Mr. Dell serves as Chairman of the Board and Chief Executive Officer of Dell Technologies. Mr. Dell served
as Chief Executive Officer of Dell Inc., a wholly-owned subsidiary of Dell Technologies, from 1984 until
July 2004 and resumed that role in January 2007. In 1998, Mr. Dell formed MSD Capital, L.P., a private
investment firm, for the purpose of managing his and his family’s investments, and, in 1999, he and
his wife established the Michael & Susan Dell Foundation to provide philanthropic support to a variety
of global causes. Mr. Dell is an honorary member of the Foundation Board of the World Economic Forum and is
an executive committee member of the International Business Council. He serves as a member of the Technology
CEO Council and is a member of the Business Roundtable. He also serves on the advisory board of Tsinghua
University’s School of Economics and Management in Beijing, China, on the governing board of the
Indian School of Business in Hyderabad, India, and as a board member of Catalyst, Inc., a non-profit
organization that promotes inclusive workplaces for women. In June 2014, Mr. Dell was named the United
Nations Foundation’s first Global Advocate for Entrepreneurship. Mr. Dell is also Chairman of the
Board of Directors of VMware, Inc., a cloud infrastructure and digital workspace technology company that was
formerly a public majority-owned subsidiary of Dell Technologies, and Non-Executive Chairman of SecureWorks
Corp., a public majority-owned subsidiary of Dell Technologies. Mr. Dell was a board member of Pivotal
Software, Inc., formerly a public majority-owned subsidiary of Dell Technologies that provides a leading
cloud-native platform, from September 2016 until it was merged with VMware, Inc. in December 2019.
Jeffrey
W. Clarke —
Mr. Clarke serves as Co-Chief Operating Officer and Vice Chairman of Dell Technologies, responsible for
running day-to-day business operations, shaping the Company’s strategic agenda, and setting priorities
across the Dell Technologies executive leadership team. In partnership with Mr. Whitten, Mr. Clarke directs
the Infrastructure Solutions Group and the Client Solutions Group and manages Global Operations, including
manufacturing, procurement, and supply chain. He is also responsible for setting long-term strategy and
leads planning for emerging technology areas such as Cloud, Edge, Telecom, and as-a-Service. Mr. Clarke has
served as Co-Chief Operating Officer since August 2021, Chief Operating Officer from December 2019 to August
2021 and Vice Chairman, Products and Operations since September 2017, before which he served as Vice
Chairman and President, Operations and Client Solutions with Dell Technologies and, previously, Dell, since
January 2009. From January 2003 until January 2009, Mr. Clarke served as Senior Vice President, Business
Product Group. From November 2001 to January 2003, Mr. Clarke served as Vice President and General Manager,
Relationship Product Group. In 1995, Mr. Clarke became the director of desktop development. Mr. Clarke
joined Dell in 1987 as a quality engineer
and
has served in a variety of other engineering and management roles. Before joining Dell Technologies, Mr.
Clarke served as a reliability and product engineer at Motorola, Inc, a global technology company.
Allison
Dew
— Ms. Dew serves as the Chief Marketing Officer of Dell Technologies. In this role, in which she has
served since March 2018, Ms. Dew is directly responsible for the global marketing organization, strategy,
and all aspects of Dell Technologies’ marketing efforts, including brand and creative, product
marketing, communications, digital, and field and channel marketing. Since joining Dell Technologies in
2008, Ms. Dew has been instrumental in Dell Technologies’ marketing transformation, leading an
emphasis on data-driven marketing, customer understanding, and integrated planning. Most recently, prior to
her current position, Ms. Dew led marketing for the Dell Technologies Client Solutions Group from December
2013 to March 2018. Before joining Dell Technologies, Ms. Dew served in various marketing leadership
roles at Microsoft Corporation, a global technology company. Ms. Dew also worked in both a regional
advertising firm in Tokyo, Japan and an independent multicultural agency in New York.
Howard
D. Elias —
Mr. Elias serves as Chief Customer Officer and President, Services and Digital at Dell Technologies. He
leads a global organization devoted to customer advocacy and oversees global support, deployment,
consulting, education, managed services, services sales, the IT organization, and strategic partnerships. He
is executive sponsor for more than a dozen of Dell Technologies’ largest enterprise accounts and is
responsible for setting and driving strategy to enable and accelerate the mission-critical business
transformations of customers and Dell’s own global operations. Mr. Elias previously served as
President and Chief Operating Officer, EMC Global Enterprise Services from January 2013 until EMC’s
acquisition by Dell Technologies in September 2016, and was President and Chief Operating Officer, EMC
Information Infrastructure and Cloud Services from September 2009 to January 2013. In these roles, Mr. Elias
was responsible for setting the strategy, driving the execution, and creating the best practices for
services that enabled the digital transformation and data center modernization of EMC’s customers. Mr.
Elias also had responsibility at EMC for leading the integration of the Dell and EMC businesses, including
overseeing the cross-functional teams that drove all facets of integration planning. Previously, Mr. Elias
was EMC’s Executive Vice President, Global Marketing and Corporate Development, responsible for all
marketing, sales enablement, technology alliances, corporate development, and new ventures. Mr. Elias was
also a co-founder and served on the board of managers for the Virtual Computing Environment Company, now
part of Dell Technologies’ converged platform division. Before joining EMC, Mr. Elias served in
various capacities at Hewlett-Packard Company, a provider of information technology products, services, and
solutions for enterprise customers, most recently as Senior Vice President of Business Management and
Operations for the Enterprise Systems Group. Mr. Elias currently serves as chairman of TEGNA Inc., a media
and digital business company, and is a member of the Massachusetts Business Roundtable.
Richard
J. Rothberg —
Mr. Rothberg serves as General Counsel and Secretary for Dell Technologies. In this role, in which he has
served since November 2013, Mr. Rothberg oversees the global legal department and manages government
affairs, compliance, and ethics. He is also responsible for global security. Mr. Rothberg joined Dell in
1999 and has served in critical leadership roles throughout the legal department. He served as Vice
President of Legal, supporting Dell’s businesses in the Europe, Middle East, and Africa region before
moving to Singapore in 2008 as Vice President of Legal for the Asia-Pacific and Japan region. Mr. Rothberg
returned to the United States in 2010 to serve as Vice President of Legal for the North America and Latin
America regions. In this role, he was lead counsel for sales and operations in the Americas and for the
enterprise solutions, software, and end-user computing business units. He also led the government affairs
organization worldwide. Before joining Dell, Mr. Rothberg served nearly eight years at Caterpillar Inc., an
equipment manufacturing company, in senior legal roles in Nashville, Tennessee and Geneva, Switzerland. Mr.
Rothberg was also an attorney for IBM Credit Corporation and at Rogers & Wells, a law firm.
Jennifer
D. Saavedra, Ph.D.
— Dr. Saavedra is Dell Technologies' Chief Human Resources Officer. In this role, Dr. Saavedra leads
Dell’s Global Human Resources and Facilities function and accelerates the performance and growth of
the company through its culture and its people. Dr. Saavedra previously served as Dell’s Senior Vice
President, Human Resources – Sales from December 2019 to March 2021 and as Dell’s Senior Vice
President, Human Resources – Talent and Culture from November 2017 to December 2019. Dr. Saavedra
joined Dell in 2005 and has served in many key leadership roles throughout the Human Resources organization,
including talent development and culture, business partner, strategy, and learning and development. Before
joining Dell in 2005, Dr. Saavedra served as a Human Resources consultant to private and public
companies.
William
F. Scannell —
Mr. Scannell serves as President, Global Sales and Customer Operations for Dell Technologies, heading the
global go-to-market organization, including Channel, OEM, Global Alliances, and Specialty Sales. In this
role, in which he has served since February 2020, Mr. Scannell is responsible for go-to-market strategy and
driving global growth by delivering Dell Technologies’ solutions to organizations in established and
new markets in approximately 180 countries. Mr. Scannell previously served as President, Global Enterprise
Sales and Customer Operations for Dell Technologies from September 2017 to January 2020, leading the sales
teams to deliver innovative and practical technology solutions to large enterprises and public institutions
worldwide. Prior to joining Dell Technologies, Mr. Scannell served as President, Global Sales and Customer
Operations at EMC. In this role, to which he was appointed in July 2012 after overseeing customer operations
in the Americas and EMEA, Mr. Scannell focused on driving coordination and teamwork among EMC’s
business unit sales forces, as well as building and maintaining relationships with EMC’s largest
global accounts, global alliance partners, and global channel partners. Mr. Scannell began his career as an
EMC sales representative in 1986, becoming country manager of Canada in 1988. Shortly thereafter, his
responsibilities expanded to include the United States and Latin America. In 1999, Mr. Scannell moved to
London to oversee EMC’s business across all of Europe, Middle East, and Africa. He then managed
worldwide sales in 2001 and 2002 before being appointed Executive Vice President in 2007.
Thomas
W. Sweet —
Mr. Sweet serves as Chief Financial Officer of Dell Technologies. In this role, in which he has served since
January 2014, he is responsible for all aspects of the Company’s finance function, including
accounting, financial planning and analysis, tax, treasury, and investor relations, as well as global
business operations, Dell Financial Services and Dell Technologies Capital. He also leads corporate
strategy, partnering closely with the office of the CEO to develop and execute a long-term growth strategy
that creates value for Dell Technologies stakeholders. From May 2007 to January 2014, Mr. Sweet served in a
variety of finance leadership roles for Dell, including as Vice President of Corporate Finance, Controller,
and Chief Accounting Officer, with responsibility for global accounting, tax, treasury, and investor
relations, as well as for global finance services. Mr. Sweet was responsible for external financial
reporting for more than five years when Dell Inc. was a publicly-traded company. Prior to this service, he
served in a variety of finance leadership positions, including as Vice President responsible for overall
finance activities within the corporate business, education, government, and healthcare business units of
Dell. Mr. Sweet also has served as the head of internal audit and in a number of sales leadership roles in
education and corporate business units since joining Dell in 1997. Prior to joining Dell, Mr. Sweet was Vice
President, Accounting and Finance, for Telos Corporation, a provider of security solutions. He previously
spent 13 years with Price Waterhouse LLP (now PricewaterhouseCoopers LLP), a firm specializing in
accounting, assurance, tax, and consulting services, in a variety of roles primarily focused on providing
audit and accounting services to the technology industry. Mr. Sweet serves on the Board of Directors of
Trimble Inc., an industrial technology company.
Anthony
Charles Whitten —
Mr. Whitten is Co-Chief Operating Officer for Dell Technologies, responsible for managing day-to-day
business operations, shaping the Company’s strategic agenda and setting priorities across the Dell
Technologies executive leadership team. In partnership with Mr. Clarke, Mr. Whitten directs the
Infrastructure Solutions Group and the Client Solutions Group and manages Global Operations, including
manufacturing, procurement, and supply chain. He is also responsible for setting long-term strategy and
leads planning for emerging technology areas such as Cloud, Edge, Telecom, and as-a-Service. Mr. Whitten
joined Dell Technologies in August 2021 from Bain & Company (“Bain”), a management
consulting company, where he served as the managing partner of Bain Southwest and was a two-time elected
member of Bain’s Board of Directors. During his 22-year tenure at Bain, Mr. Whitten supported hundreds
of clients across the globe on strategy, company transformation, M&A and capital markets strategy. In
the last decade of his career at Bain, he focused exclusively on the technology sector and was intimately
involved in shaping the long-term strategy of Dell Technologies. Under his leadership of Bain’s
Southwest region, the business more than doubled, was perennially a top Bain office in employee
satisfaction, and was recognized in 2020 and 2021 by Fortune
Magazine
as one of the best workplaces in Texas.
Recent
Developments —
On
February 26, 2023, Mr. Sweet, notified the Company of his decision to retire from his position as Chief
Financial Officer, in which position he served as the Company’s principal financial officer, effective
as of August 4, 2023.
On
March 2, 2023, the Board of Directors appointed Yvonne McGill, who currently serves as the Company’s
Corporate Controller, as the Company’s Chief Financial Officer, to succeed Mr. Sweet in that position
and as the Company’s principal financial officer, effective as of August 5, 2023.
Ms.
McGill, age 56, has served as the Company’s Corporate Controller since February 2020, where she has
responsibility for accounting, tax, treasury, and investor relations. Previously, Ms. McGill served as Chief
Financial Officer and Senior Vice President, Infrastructure Solutions Group, from March 2018 to February
2020, and Senior Vice President, Global Financial Planning and Analysis, from August 2015 to March 2020.
Since joining Dell in 1997, Ms. McGill served in various other finance leadership roles, including heading
finance for the Company’s Asia-Pacific, Japan and China region. Before beginning her service with
Dell, Ms. McGill worked at ManTech International Corporation, a company providing technology solutions and
services to U.S. intelligence, defense and federal civilian agencies, and Price Waterhouse LLP (now
PricewaterhouseCoopers LLP), a firm specializing in accounting, assurance, tax, and consulting services. Ms.
McGill serves on the board of directors of Applied Materials, Inc., an international materials engineering
company.
ITEM 1A —
RISK FACTORS
Our
business, operating results, financial condition, and prospects are subject to a variety of significant
risks, many of which are beyond our control. The following is a description of some of the important risk
factors that may cause our actual results in future periods to differ substantially from those we currently
expect or seek. The risks described below are not the only risks we face. There are additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial that also may materially
adversely affect our business, operating results, financial condition, or prospects.
Risks
Relating to Our Business and Our Industry
Adverse
global economic conditions may harm our business and result in reduced net revenue and profitability.
As
a global company with customers operating in a broad range of businesses and industries, our performance is
affected by global economic conditions and the demand for technology products and services in international
markets. Adverse economic conditions may negatively affect customer demand, and could result in postponed or
decreased spending amid customer concerns over unemployment or slowing demand for their products, reduced
asset values, volatile energy costs, geopolitical issues, the availability and cost of credit, and the
stability and solvency of financial institutions, financial markets, businesses, local and state
governments, and sovereign nations. Weak or unstable global economic conditions, including those
attributable to international conflicts, such as the conflict in Ukraine, international trade protection
measures and disputes, such as those between the United States and China, or public health issues, such as
those resulting from the coronavirus disease 19 (“COVID-19”), also could harm our business by
contributing to product shortages or delays, supply chain disruptions, insolvency of key suppliers, customer
and counterparty insolvencies, increased product costs and associated price increases, reduced global sales,
and other adverse effects on our operations. Any such effects could have a negative impact on our net
revenue and profitability.
Competitive
pressures may adversely affect our industry unit share position, revenue, and profitability.
We
operate in an industry in which there are rapid technological advances in hardware, software, and services
offerings. As a result, we face aggressive offering and price competition from both branded and generic
competitors. We compete based on our ability to offer to our customers integrated solutions that provide
desired features at a competitive price. Our competitors may provide offerings that are less costly, perform
better, or include additional features. Further, our offering portfolios may quickly become outdated or our
market share may quickly erode. Efforts to balance the mix of products and services to optimize
profitability, liquidity, and growth may put pressure on our industry position.
As
the technology industry continues to expand, there may be new and increased competition in different
geographic regions. The generally low barriers to entry into the technology industry increase the potential
for challenges from new competitors. Competition also may intensify from an increase in alternatives for
mobile and cloud computing solutions. In addition, companies with which we have strategic alliances may
become competitors in other product areas, or current competitors may enter into new strategic relationships
with new or existing competitors, all of which may further increase competitive pressures.
Reliance
on vendors for products and components, many of which are single-source or limited-source suppliers, could
harm our business by adversely affecting product availability, delivery, reliability, and cost.
We
maintain several single-source or limited-source supplier relationships, including relationships with
third-party software providers, either because multiple sources are not readily available or because the
relationships are advantageous due to performance, quality, support, delivery, capacity, or price
considerations. A delay in the supply of a critical single- or limited-source product or component may
prevent the timely shipment of the related product in desired quantities or configurations. In addition, we
may not be able to replace the functionality provided by third-party software currently offered with our
products if that software becomes obsolete, defective, or incompatible with future product versions or is
not adequately maintained or updated. Even where multiple sources of supply are available, qualification of
the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss
of sales, which could harm our operating results.
We
obtain many products and all of our components from third-party vendors, many of which are located outside
of the United States. In addition, significant portions of our products are assembled by contract
manufacturers, primarily in various locations in Asia. A significant concentration of such outsourced
manufacturing is performed by only a few contract manufacturers, often in single locations. We sell
components to these contract manufacturers and generate large non-trade accounts
receivables,
an arrangement that would present a risk of uncollectibility if the financial condition of a contract
manufacturer should deteriorate.
Although
these relationships generate cost efficiencies, they limit our direct control over production. The
increasing reliance on vendors subjects us to a greater risk of shortages and reduced control over delivery
schedules of components and products, as well as a greater risk of increases in product and component costs.
We experienced some of these adverse effects in Fiscal 2023, Fiscal 2022, and Fiscal 2021 as a result of
continued impacts of the COVID-19.
We
may experience additional supply shortages and price increases caused by changes to raw material
availability, manufacturing capacity, labor shortages, public health issues, tariffs, trade disputes and
protectionist measures, natural catastrophes or the effects of climate change (such as extreme weather
conditions, sea level rise, drought, flooding, and wildfires), and significant changes in the financial
condition of our suppliers. Because we maintain minimal levels of component and product inventories, a
disruption in component or product availability could harm our ability to satisfy customer needs. In
addition, defective parts and products from these vendors could reduce product reliability and harm our
reputation.
If
we fail to achieve favorable pricing from vendors, our profitability could be adversely affected.
Our
profitability is affected by our ability to achieve favorable pricing from vendors and contract
manufacturers, including through negotiations for vendor rebates, marketing funds, and other vendor funding
received in the normal course of business. Because these supplier negotiations are continual and reflect the
evolving competitive environment, the variability in timing and amount of incremental vendor discounts and
rebates can affect our profitability. The vendor programs may change periodically, potentially resulting in
adverse profitability trends if we cannot adjust pricing or variable costs. An inability to establish a cost
and product advantage, or determine alternative means to deliver value to customers, may adversely affect
our revenue and profitability.
We
may not achieve the intended benefits of our continuing strategic relationship with VMware.
On
November 1, 2021, upon completion of the VMware Spin-off, the businesses of VMware were separated from our
remaining businesses, and we and VMware entered into various agreements that govern our current
relationship. Among those agreements, a commercial framework agreement provides a framework under which we
and VMware are continuing our strategic relationship, particularly with respect to projects we and VMware
believe have the potential to accelerate the growth of the industry, product, service, or platform that may
provide one or both of our companies with a strategic market opportunity. We may not obtain the benefits we
seek from a continuation of our strategic relationship with VMware under the commercial framework agreement
and other arrangements. In addition to a potential for business disruption, the VMware Spin-off could cause
our customers to delay or defer decisions to purchase products or renew contracts, or cause them to end
their relationships with us, which could have a material adverse effect on our business, financial
condition, results of operations, or cash flows.
The
results of operations of our business units may be adversely affected if we fail to successfully execute our
strategy.
Our
strategy involves enabling the digital transformation of our customers while leading in the core
infrastructure markets in which we compete. Accordingly, we must continue to expand our customer base
through direct sales, new distribution channels, continued development of new growth businesses, further
development of relationships with resellers, and augmentation of selected business areas through targeted
acquisitions and other commercial arrangements. As we reach more customers through new distribution channels
and expanded reseller relationships, we may fail to effectively manage the increasingly difficult tasks of
inventory management and demand forecasting. Our ability to implement this strategy depends on efficiently
transitioning sales capabilities, successfully adding to the breadth of our solutions capabilities through
selective acquisitions of other businesses, and effective management of the consequences of these strategic
initiatives. If we are unable to meet these challenges, our results of operations could be adversely
affected.
We
are organized into two business units consisting of ISG and CSG that are each important components of our
strategy. ISG offers a portfolio of storage, server, and networking solutions and faces intense competition
from existing on-premises competitors and increasing competitive pressures from Infrastructure-as-a-Service
providers. Accordingly, we expect we will be required to make additional investments to combat such
competitive pressures and drive future growth. Such pressures could result in the erosion of revenue and
operating income and adversely affect ISG’s results of operations. To address an industry trend toward
hybrid-computing models, we have developed and continue to develop traditional, converged, and
hyper-converged infrastructure solutions. ISG’s results of operations could be adversely affected if
such solutions are not adopted by our customers or potential customers, or if customers move rapidly to
adopt public cloud solutions.
CSG
largely relies on sales of desktops, workstations, and notebooks. Revenue from CSG absorbs our overhead
costs and allows for scaled procurement. CSG faces risk and uncertainties from fundamental changes in the
personal computer market, including a decline in worldwide revenues for desktops, workstations, and
notebooks, and lower shipment forecasts for these products due to a general lengthening of the replacement
cycle. Any reduced demand for PC products or a significant increase in competition could cause our operating
income to fluctuate and adversely impact CSG’s results of operations.
Our
inability to manage solutions and product and services transitions in an effective manner could reduce the
demand for our solutions, products, and services, and negatively affect the profitability of our operations.
Continuing
improvements in technology result in the frequent introduction of new solutions, products, and services,
improvements in product performance characteristics, and short product life cycles. If we fail to
effectively manage transitions to new solutions and offerings, the products and services associated with
such offerings and customer demand for our solutions, products, and services could diminish, and our
profitability could suffer.
We
increasingly source new products and transition existing products through our contract manufacturers and
manufacturing outsourcing relationships to generate cost efficiencies and better serve our customers. The
success of product transitions depends on a number of factors, including the availability of sufficient
quantities of components at an acceptable cost. Product transitions also present execution uncertainties and
risks, including the risk that new or upgraded products may have quality problems or other defects.
Failure
to deliver high-quality products, software, and services could lead to loss of customers and diminished
profitability.
We
must identify and address quality issues associated with our products, software, and services, many of which
include third-party components. Although quality testing is performed regularly to detect quality problems
and implement required solutions, failure to identify and correct significant product quality issues before
the sale of such products to customers could result in lower sales, increased warranty or replacement
expenses, and reduced customer confidence, which could harm our operating results.
Cyber-attacks
and other security incidents that disrupt our operations or result in the breach or other compromise of
proprietary or confidential information about us or our workforce, customers, or other third parties could
disrupt our business, harm our reputation, cause us to lose clients and expose us to costly regulatory
enforcement and litigation.
We
routinely manage, store, transmit and otherwise process large amounts of proprietary information and
confidential data, including sensitive and personally identifiable information, relating to our operations,
products, and customers. We face numerous evolving cyber threats of significant scale, volume, severity, and
complexity, making it increasingly difficult to defend against security incidents successfully or to
implement adequate preventative measures.
Despite
our internal controls and significant and ongoing investment in security measures, criminal or other
unauthorized threat actors, including nation states or state-sponsored organizations, may be able to
penetrate our security defenses, breach our information technology systems, misappropriate or compromise
confidential and proprietary information of our company or our customers, cause system disruptions and
shutdowns, or introduce ransomware, malware, or vulnerabilities into our products, systems, and networks or
those of our customers and partners. Employees, contractors, or other insiders may introduce vulnerabilities
into our environments or otherwise may seek to misappropriate our intellectual property and proprietary
information. The shift to work-from-home and flexible work arrangements following the COVID-19 pandemic may
increase our vulnerability, as employees and contractors of our company and third-party providers are
working remotely and using home networks that may pose a significant risk to network, data, and cyber
security. In addition, our business may be adversely affected by cyber-attacks and data thefts resulting
from ongoing wars and geopolitical conflicts. In the past, we have experienced security incidents, including
the unauthorized activity on our network attempting to extract Dell.com customer information we disclosed in
November 2018.
The
costs to address cyber risks, both before and after a security incident, could be significant, regardless of
whether incidents result from an attack on us directly or on third-party vendors upon which we rely. Our
customers, partners, and third-party vendors continue to experience security incidents of varying severity,
including, but not limited to, increased ransomware attacks, network intrusions, and unauthorized data
exfiltration, which have directly and indirectly impacted our operations in the past. Targeted cyber-attacks
or those that may result from a security incident directed at a third-party vendor could compromise our
internal systems, products, services, and offerings, and the systems of our customers, resulting in
interruptions, delays, or
cessation
of service that could disrupt business operations for us and our customers. Our proactive measures and
remediation efforts may not be successful or timely. In addition, breaches of our security measures,
including through the use and the unapproved dissemination of proprietary information or sensitive or
confidential data about us, our customers, or other third parties, could impair our intellectual property
rights and expose us, our customers, or such other third parties to a risk of loss or misuse of such
information or data. Any such incidents also could subject us to government investigations and regulatory
enforcement actions, litigation, potential liability, and damage to our brand and reputation, or otherwise
harm our business and operations.
Hardware,
software, and applications that we produce or procure from third parties also may contain defects in design
or manufacture or other deficiencies, including security vulnerabilities that could interfere with the
operation or security of our products, services, and offerings. In the event of a security vulnerability or
other flaws in third-party components or software code, we may have to rely on multiple third parties to
mitigate vulnerabilities. Such mitigation techniques may be ineffective or may result in adverse
performance, system instability or data loss, and may not always be available, or available on a timely
basis. Any actual or perceived security vulnerabilities in our products or services, or those of third-party
products we sell, could lead to loss of existing or potential customers, and may impede our sales,
manufacturing, distribution, outsourcing services, information technology solutions, and other critical
functions and offerings. Failure to prevent or promptly mitigate security vulnerabilities may adversely
affect our brand and reputation and subject us to government investigations, regulatory enforcement actions,
litigation and potential liability resulting from our inability to fulfill our contractual obligations to
our customers and partners.
As
a global enterprise, we are subject to an increasing number of laws and regulations in the United States and
numerous other countries relating to the collection, use, residency, transfer, and protection of data,
including customer data, and other sensitive, confidential, and proprietary information. Our ability to
execute transactions and to process and use personal information and other data in the conduct of our
business, the operation of our products and offers, and the provision of services to our customers subjects
us to increased obligations to comply with applicable laws and regulations and may require us to notify
regulators, customers, employees, or other third parties of our data processing and data transfer
activities, as well as provide notification and disclosure of security incidents and data or privacy
breaches. The rapid evolution and increased adoption of artificial intelligence (“AI”)
technologies and our obligations to comply with emerging AI laws and regulations may require us to develop
additional AI-specific governance programs. We continue to incur significant expenditures to comply with
mandatory privacy, security, data protection and localization requirements imposed by law, regulation,
industry standards and contractual obligations. Despite such expenditures, we may face regulatory and other
legal actions, including potential liability or the inability to conduct business or sell our products or
offers in a specific jurisdiction, in the event of a security incident or data or privacy breach or
perceived or actual non-compliance with such regulatory requirements and controls.
Failure
to successfully execute on strategic initiatives including acquisitions, divestitures or cost saving
measures may negatively impact our future results.
We
make strategic acquisitions of other companies as part of our growth strategy. We could experience
unforeseen operating difficulties in integrating the businesses, technologies, services, products,
personnel, or operations of acquired companies, especially if we are unable to retain the key personnel of
an acquired company. Further, future acquisitions may result in a delay or reduction of sales for both us
and the acquired company because of customer uncertainty about the continuity and effectiveness of solutions
offered by either company and may disrupt our existing business by diverting resources and significant
management attention that otherwise would be focused on development of the existing business. Acquisitions
also may negatively affect our relationships with strategic partners if the acquisitions are seen as
bringing us into competition with such partners.
To
complete an acquisition, we may be required to use substantial amounts of cash, engage in equity or debt
financings, or enter into credit agreements to secure additional funds. Such debt financings could involve
restrictive covenants that might limit our capital-raising activities and operating flexibility. Further, an
acquisition may negatively affect our results of operations because it may expose us to unexpected
liabilities, require the incurrence of charges and substantial indebtedness or other liabilities, have
adverse tax consequences, result in acquired in-process research and development expenses, or in the future
require the amortization, write-down, or impairment of amounts related to deferred compensation, goodwill,
and other intangible assets, or fail to generate a financial return sufficient to offset acquisition
costs.
In
addition, we periodically divest businesses, including businesses that are no longer a part of our strategic
plan. These divestitures similarly require significant investment of time and resources, may disrupt our
business and distract management from other responsibilities, and may result in losses on disposition or
continued financial involvement in the divested business,
including
through indemnification or other financial arrangements, for a period following the transaction, which could
adversely affect our financial results.
We
continue to focus on minimizing operating expenses through cost improvements and simplification of our
corporate structure. Cost saving measures and reorganizations, such as those we announced in February 2023,
and divestitures may result in workforce reduction and consolidation of facilities. As a result of these
actions, we may experience a loss of continuity, loss of accumulated knowledge, disruptions to our
operations and inefficiency during transitional periods. These actions could also impact employee retention.
We may experience delays or unanticipated costs in implementing our cost efficiency plans, which could
prevent the timely or full achievement of expected cost efficiencies and adversely affect our competitive
position.
Our
ability to generate substantial non-U.S. net revenue is subject to additional risks and uncertainties.
Sales
outside the United States accounted for approximately half of our consolidated net revenue for Fiscal 2023.
Our future growth rates and success are substantially dependent on the continued growth of our business
outside of the United States. Our international operations face many risks and uncertainties, including
varied local economic and labor conditions; political instability; public health issues; changes in the U.S.
and international regulatory environments; the impacts of trade protection measures, including increases in
tariffs and trade barriers due to the current geopolitical climate and changes and instability in government
policies and international trade arrangements, which could adversely affect our ability to conduct business
in non-U.S. markets; changes in tax laws; potential theft or other compromise of our technology, data, or
intellectual property; copyright levies; and volatility in foreign currency exchange rates. We could incur
additional operating costs, or sustain supply chain disruptions, due to any such changes. Any of these
factors could negatively affect our international business results and growth prospects.
Our
profitability may be adversely affected by changes in the mix of products and services, customers, or
geographic sales, and by seasonal sales trends.
Our
overall profitability for any period may be adversely affected by changes in the mix of products and
services, customers, or geographic markets reflected in sales for that period, and by seasonal trends.
Profit margins vary among products, services, customers, and geographic markets. For example, our services
offerings generally have a higher profit margin than consumer products. In addition, parts of our business
are subject to seasonal sales trends. Within ISG, our storage sales are typically stronger in our fourth
fiscal quarter. Our sales within the Americas are typically stronger in the second and fourth fiscal
quarters, while our sales in EMEA are typically stronger during the fourth fiscal quarter.
We
may lose revenue opportunities and experience gross margin pressure if sales channel participants fail to
perform as expected.
We
rely on value-added resellers, system integrators, distributors, and retailers as sales channels to
complement our direct sales organization in order to reach more end-users. Our future operating results
depend on the performance of sales channel participants and on our success in maintaining and developing
these relationships. Our revenue and gross margins could be negatively affected if the financial condition
or operations of channel participants weaken as a result of adverse economic conditions or other business
challenges, or if uncertainty regarding the demand for our products causes channel participants to reduce
their orders for these products. Further, some channel participants may consider the expansion of our direct
sales initiatives to conflict with their business interests as distributors or resellers of our products,
which could lead them to reduce their investment in the distribution and sale of such products, or to cease
all sales of our products.
Our
financial performance could suffer from reduced access to the capital markets by us or some of our
customers.
We
may access debt and capital sources to provide financing for customers and to obtain funds for general
corporate purposes, including working capital, acquisitions, capital expenditures, and funding of customer
receivables. In addition, we maintain customer financing relationships with some companies that rely on
access to the debt and capital markets to meet significant funding needs. Any inability of these companies
to access such markets could compel us to self-fund transactions with such companies or to forgo customer
financing opportunities, which could harm our financial performance. The debt and capital markets may
experience extreme volatility and disruption from time to time, which could result in higher credit spreads
in such markets and higher funding costs for us. Deterioration in our business performance, a credit rating
downgrade, volatility in the securitization markets, changes in financial services regulation, or adverse
changes in the economy could lead to reductions in the availability of debt financing. In addition, these
events could limit our ability to continue asset securitizations or other forms of financing from debt or
capital sources, reduce the amount of financing receivables that we originate, or negatively
affect
the costs or terms on which we may be able to obtain capital. Any of these developments could adversely
affect our net revenue, profitability, and cash flows.
If
the value of our goodwill or intangible assets is materially impaired, our results of operations and
financial condition could be materially and adversely affected.
As
of February 3, 2023, our goodwill and intangible assets, net had a combined carrying value of $26.1
billion, representing approximately 29% of our total consolidated assets. We periodically evaluate goodwill
and intangible assets, net to determine whether all or a portion of their carrying values may be impaired,
in which case an impairment charge may be necessary. The value of goodwill may be materially and adversely
affected if businesses that we acquire perform in a manner that is inconsistent with our assumptions at the
time of acquisition. In addition, from time to time we divest businesses, and any such divestiture could
result in significant asset impairment and disposition charges, including those related to goodwill and
intangible assets, net. Any future evaluations resulting in an impairment of goodwill or intangible assets,
net could materially and adversely affect our results of operations and financial condition in the period in
which the impairment is recognized.
Weak
economic conditions and additional regulation could harm our financial services activities.
Our
financial services activities primarily through DFS can be negatively affected by adverse economic
conditions that contribute to loan delinquencies and defaults. An increase in loan delinquencies and
defaults would result in greater net credit losses, which may require us to increase our reserves for
customer receivables.
In
addition, the implementation of new financial services regulation, or the application of existing financial
services regulation, in countries where we conduct our financial services and related supporting activities,
could unfavorably affect the profitability and cash flows of our consumer financing activities.
We
are subject to counterparty default risks.
We
have numerous arrangements with financial institutions that include cash and investment deposits, interest
rate swap contracts, foreign currency option contracts, and forward contracts. As a result, we are subject
to the risk that the counterparty to one or more of these arrangements will default, either voluntarily or
involuntarily, on its performance under the terms of the arrangement. In times of market distress, a
counterparty may default rapidly and without notice, and we may be unable to take action to cover its
exposure, either because of lack of contractual ability to do so or because market conditions make it
difficult to take effective action. If one of our counterparties becomes insolvent or files for bankruptcy,
our ability eventually to recover any losses suffered as a result of that counterparty’s default may
be limited by the impaired liquidity of the counterparty or the applicable legal regime governing the
bankruptcy proceeding. In the event of such a default, we could incur significant losses, which could harm
our business and adversely affect our results of operations and financial condition.
Our
performance and business could suffer if our contracts for ISG services and solutions fail to produce
revenue at expected levels due to exercise of customer rights under the contracts, inaccurate estimation of
costs, or customer defaults in payment.
We
offer our ISG customers a range of consumption models for our services and solutions, including
as-a-Service, utility, leases, or immediate pay models, designed to match customers’ consumption
preferences. These solutions generally are multiyear agreements that typically result in recurring revenue
streams over the term of the arrangement. Our financial results and growth depend, in part, on customers
continuing to purchase our services and solutions over the contract life on the agreed terms. The contracts
allow customers to take actions that may adversely affect our recurring revenue and profitability. These
actions include terminating a contract if our performance does not meet specified services levels,
requesting rate reductions, reducing the use of our services and solutions or terminating a contract early
upon payment of agreed fees. In addition, we estimate the costs of delivering the services and solutions at
the outset of the contract. If we fail to estimate such costs accurately and actual costs significantly
exceed estimates, we may incur losses on the contracts. We also are subject to the risk of loss under the
contracts as a result of a default, voluntarily or involuntarily, in payment by the customer, whether
because of financial weakness or other reasons.
Loss
of government contracts could harm our business.
Contracts
with U.S. federal, state, and local governments and with foreign governments are subject to future funding
that may affect the extension or termination of programs and to the right of such governments to terminate
contracts for convenience or non-appropriation. There is pressure on governments, both domestically and
internationally, to reduce spending. Funding reductions or delays could adversely affect public sector
demand for our products and services. In addition, if we violate legal or regulatory requirements, the
applicable government could suspend or disbar us as a contractor, which would unfavorably affect our net
revenue and profitability.
Our
business could suffer if we do not develop and protect our proprietary intellectual property or obtain or
protect licenses to intellectual property developed by others on commercially reasonable and competitive
terms.
If
we or our suppliers are unable to develop or protect desirable technology or technology licenses, we may be
prevented from marketing products, may have to market products without desirable features, or may incur
substantial costs to redesign products. We also may have to defend or enforce legal actions or pay damages
if we are found to have violated the intellectual property of other parties. Although our suppliers might be
contractually obligated to obtain or protect such licenses and indemnify us against related expenses, those
suppliers could be unable to meet their obligations. We invest in research and development and obtain
additional intellectual property through acquisitions, but those activities do not guarantee that we will
develop or obtain intellectual property necessary for profitable operations. Costs involved in developing
and protecting rights in intellectual property may have a negative impact on our business. In addition, our
operating costs could increase because of copyright levies or similar fees by rights holders and collection
agencies in European and other countries.
Infrastructure
disruptions could harm our business.
We
depend on our information technology and manufacturing infrastructure to achieve our business objectives.
Natural disasters, manufacturing failures, telecommunications system failures, or defective or improperly
installed new or upgraded business management systems could lead to disruptions in this infrastructure.
Portions of our IT infrastructure, including those provided by third parties, also may experience
interruptions, delays, or cessations of service, or produce errors in connection with systems integration or
migration work. Such disruptions may adversely affect our ability to receive or process orders, manufacture
and ship products in a timely manner, or otherwise conduct business in the normal course. Further, portions
of our business involve the processing, storage, and transmission of data, which also would be negatively
affected by such an event. Disruptions in our infrastructure could lead to loss of customers and revenue,
particularly during a period of heavy demand for our products and services. We also could incur significant
expense in repairing system damage and taking other remedial measures.
Failure
to hedge effectively our exposure to fluctuations in foreign currency exchange rates and interest rates
could adversely affect our financial condition and results of operations.
We
utilize derivative instruments to hedge our exposure to fluctuations in foreign currency exchange rates and
interest rates. Some of these instruments and contracts may involve elements of market and credit risk in
excess of the amounts recognized in our financial statements. Global economic events, including trade
disputes, economic sanctions and emerging market volatility, and associated uncertainty could cause
currencies to fluctuate, which may contribute to variations in our sales of products and services in various
jurisdictions. If we are not successful in monitoring our foreign exchange exposures and conducting an
effective hedging program, our foreign currency hedging activities may not offset the impact of fluctuations
in currency exchange rates on our results of operations and financial position.
Adverse
legislative or regulatory tax changes, the expiration of tax holidays or favorable tax rate structures, or
unfavorable outcomes in tax audits and other tax compliance matters could result in an increase in our tax
expense or our effective income tax rate.
Changes
in tax laws could adversely affect our operations and profitability. In recent years, numerous legislative,
judicial, and administrative changes have been made to tax laws applicable to us and similar companies. The
Organisation for Economic Co-operation and Development (the “OECD”), an international
association of 38 countries, including the United States, has issued guidelines that change long-standing
tax principles. The OECD guidelines may introduce tax uncertainty as countries amend their tax laws to adopt
certain parts of the guidelines. Additional changes to tax laws are likely to occur, and such changes may
adversely affect our tax liability.
Portions
of our operations are subject to a reduced tax rate or are free of tax under various tax holidays that
expire in whole or in part from time to time. Many of these holidays may be extended when certain conditions
are met, or may be terminated if certain conditions are not met or as a result of changes in tax
legislation. If the tax holidays are not extended, if tax legislation changes, or if we fail to satisfy the
conditions of the reduced tax rate, our effective tax rate would be affected. Our effective tax rate also
could be impacted if our geographic distribution of earnings changes. In addition, any actions by us to
repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes may affect the
effective tax rate.
We
are continually under audit in various tax jurisdictions. We may not be successful in resolving potential
tax claims that arise from these audits. A final determination of tax audits or disputes may differ from
what is reflected in our historical income tax provisions or benefits and accruals. An unfavorable outcome
in certain of these matters could result in a substantial increase in our tax expense. In addition, our
provision for income taxes could be adversely affected by changes in the valuation of deferred tax assets.
Our
profitability could suffer from declines in fair value or impairment of our portfolio investments.
We
invest a significant portion of available funds in a portfolio consisting of both equity and debt securities
of various types and maturities pending the deployment of these funds in our business. Our equity
investments consist of strategic investments in both marketable and non-marketable securities. Investments
in marketable securities are measured at fair value on a recurring basis. We have elected to apply the
measurement alternative for non-marketable securities. Under the alternative, we measure investments without
readily determinable fair values at cost, less impairment, adjusted by observable price changes. Our debt
securities generally are classified as held to maturity and are recorded in our financial statements at
amortized cost. Our earnings performance could suffer from declines in fair value or impairment of our
investments.
Unfavorable
results of legal proceedings could harm our business and result in substantial costs.
We
are involved in various claims, suits, investigations, and legal proceedings that arise from time to time in
the ordinary course of business or otherwise. Additional legal claims or regulatory matters affecting us and
our subsidiaries may arise in the future and could involve stockholder, consumer, regulatory, compliance,
intellectual property, antitrust, tax, and other issues on a global basis. Litigation is inherently
unpredictable. Regardless of the merits of a claim, litigation may be both time-consuming and disruptive to
our business. We could incur judgments or enter into settlements of claims that could adversely affect our
operating results or cash flows in a particular period. Even if we are not named a party to a particular
suit, we may be subject to indemnification obligations to the named parties that could subject us to
liability for damages or other amounts payable as a result of such judgments or settlements. In addition,
our business, operating results, and financial condition could be adversely affected if any infringement or
other intellectual property claim made against us by any third party is successful, or if we fail to develop
non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions.
Expectations
relating to environmental, social and governance (ESG) considerations expose us to potential liabilities,
increased costs, reputational harm, and other adverse effects on our business.
Many
governments, regulators, investors, employees, customers, and other stakeholders are increasingly focused on
environmental, social and governance (“ESG”) considerations relating to businesses, including
climate change and greenhouse gas emissions, human and civil rights, and diversity and inclusion. We make
statements about our environmental, social and governance goals and initiatives through our SEC filings, our
annual ESG report, our other non-financial reports, information provided on our website, press statements
and other communications. Responding to these ESG considerations and implementation of these goals and
initiatives involves risks and uncertainties, requires investments, and depends in part on third-party
performance or data that is outside our control. We cannot guarantee that we will achieve our announced ESG
goals and initiatives. In addition, some stakeholders may disagree with our goals and initiatives. Any
failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public
statements, comply with federal, state, or international ESG laws and regulations, or meet evolving and
varied stakeholder expectations and standards could result in legal and regulatory proceedings against us
and materially adversely affect our business, reputation, results of operations, and financial
condition.
Compliance
requirements of current or future environmental and safety laws, human rights laws, or other laws may
increase costs, expose us to potential liability and otherwise harm our business.
Our
operations are subject to environmental and safety regulations in all areas in which we conduct business.
Product design and procurement operations must comply with new and future requirements relating to climate
change laws and regulations,
materials
composition, sourcing, energy efficiency and collection, recycling, treatment, transportation, and disposal
of electronics products, including restrictions on mercury, lead, cadmium, lithium metal, lithium ion, and
other substances. If we fail to comply with applicable rules and regulations regarding the transportation,
source, use, and sale of such regulated substances, we could be subject to liability. The costs and timing
of costs under environmental and safety laws are difficult to predict, but could have an adverse impact on
our business.
In
addition, we and our subsidiaries are subject to various anti-corruption laws that prohibit improper
payments or offers of payments to foreign governments and their officials for the purpose of obtaining or
retaining business, and are also subject to export controls, customs, economic sanctions laws, including
those currently imposed on Russia, and embargoes imposed by the U.S. government. Violations of the U.S.
Foreign Corrupt Practices Act or other anti-corruption laws or export control, customs, or economic
sanctions laws may result in severe criminal or civil sanctions and penalties, and we and our subsidiaries
may be subject to other liabilities that could have a material adverse effect on our business, results of
operations, and financial condition.
We
are subject to various human rights laws, including provisions of the Dodd-Frank Wall Street Reform and
Consumer Protection Act intended to improve transparency and accountability concerning the supply of
minerals originating from the conflict zones of the Democratic Republic of the Congo or adjoining countries.
We incur costs to comply with the disclosure requirements of this law and other costs relating to the
sourcing and availability of minerals used in our products. Further, we may face reputational harm if our
customers or other stakeholders conclude that we are unable to sufficiently verify the origins of the
minerals used in our products.
Natural
disasters, terrorism, armed hostilities, or public health issues could harm our business.
Natural
disasters, terrorism or armed hostilities, such as the war between Russia and Ukraine, or public health
issues, such as those resulting from the COVID-19 pandemic, whether in the United States or in other
countries, could cause damage or disruption to us or our suppliers and customers, or could create political
or economic instability, any of which impacts could harm our business. Any such events could cause a
decrease in demand for our products, make it difficult or impossible to deliver products or for suppliers to
deliver components, and create delays and inefficiencies in our supply chain.
The
COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains, created
significant volatility and disruption in financial markets, and, at times, increased unemployment levels. In
addition, the pandemic resulted in temporary closures of many businesses and the institution of various
lockdown orders and sheltering in place requirements around the world. The effects of COVID-19 adversely
impacted aspects of our business over the last three fiscal years. The full impact of COVID-19 or any other
widespread public health issue on our financial condition and results of operations will depend on the
duration and scope of an outbreak (including the emergence or re-emergence of variants and their
transmissibility, and the success of vaccination programs and treatments), its impact on our consumers and
our partners, how quickly normal economic conditions, operations, and the demand for our services and
products can resume, and any permanent behavioral changes which the pandemic or other public health issue
may cause. These conditions and impacts are highly uncertain and cannot be predicted.
Global
climate change, and legal, regulatory, or market measures to address climate change, may negatively affect
our business, operations, and financial results.
We
are subject to risks associated with the long-term effects of climate change on the global economy and on
the IT industry in particular. The physical risks associated with climate change include the adverse effects
of carbon dioxide and other greenhouse gases on global temperatures, weather patterns, and the frequency and
severity of natural disasters. Extreme weather and natural disasters within or outside the United States
could make it more difficult and costly for us to manufacture and deliver our products to our customers,
obtain production materials from our suppliers, or perform other critical corporate functions. For example,
tornadoes in Tennessee, wildfires in California, and typhoons in the Philippines disrupted our operations in
those areas in recent periods.
The
increasing concern over climate change could also result in transition risks such as shifting customer
preferences or regulatory changes. Changing customer preferences may result in increased demands regarding
our solutions, products, and services, including the use of packaging materials and other components in our
products and their environmental impact on sustainability. These demands may cause us to incur additional
costs or make other changes to other operations to respond to such demands, which could adversely affect our
financial results. If we fail to manage transition risks, including such demands,
in
an effective manner, customer demand for our solutions, products, and services could diminish, and our
profitability could suffer.
The
increasing concern over climate change could result in new domestic or international legal requirements for
us to reduce greenhouse gas emissions and other environmental impacts of our operations, improve our energy
efficiency, or undertake sustainability measures that exceed those we currently pursue. Any such regulatory
requirements could cause disruptions in the manufacture of our products and result in increased procurement,
production, and distribution costs. Our reputation and brand could be harmed if we fail, or are seen as
having failed, to respond responsibly and effectively to changes in legal and regulatory measures adopted to
address climate change.
We
are highly dependent on the services of Michael S. Dell, our Chief Executive Officer, and our loss of, or
our inability to continue to attract, retain, and motivate, executive talent and other employees in this
highly competitive market could harm our business.
We
are highly dependent on the services of Michael S. Dell, our founder, Chief Executive Officer, and largest
stockholder.
Further,
we rely on key personnel, including other members of our executive leadership team, to support our business
and increasingly complex product and services offerings.
Our
experienced executives are supported by employees in our U.S. and international operations who are highly
skilled in product development, manufacturing, sales, and other functions critical to our future growth and
profitability.
If
we lose the services of Mr. Dell or other key personnel, we may not be able to locate suitable or qualified
replacements, and we may incur additional expenses to recruit replacements, which could severely disrupt our
business and growth.
We
face intensive competition, both within and outside of our industry, in retaining and hiring individuals
with the requisite expertise.
As
a result of this competition, we may be unable to continue to attract, retain, and motivate suitably
qualified individuals at acceptable compensation levels who have the managerial, operational, and technical
knowledge and experience to meet our needs.
Any
failure by us to do so could adversely affect our competitive position and results of operations.
We
have outstanding indebtedness and may incur additional debt in the future, which could adversely affect our
financial condition.
As
of February 3, 2023, we and our subsidiaries had approximately $29.6 billion aggregate principal amount
of indebtedness. As of the same date, we and our subsidiaries also had an additional $6.0 billion available
for borrowing under our revolving credit facility and $5.0 billion of availability under our commercial
paper program. Although continued debt paydown is part of our overall capital allocation strategy, a
substantial portion of our cash flow from operations is used to make interest and other debt service
payments, which reduces funds available to us for other purposes such as working capital, capital
expenditures, other general corporate purposes, and potential acquisitions. Our indebtedness could also
reduce our flexibility in responding to current and changing industry and financial market conditions. We
may be able to incur significant additional secured and unsecured indebtedness under the terms of our
existing debt, which generally do not restrict our ability to incur additional unsecured debt and contain
significant exceptions to the covenant restricting our ability to incur additional secured debt.
Risks
Relating to Ownership of Our Class C Common Stock
Our
multi-class common stock structure with different voting rights may adversely affect the trading price of
the Class C Common Stock.
Each
share of our Class A Common Stock and each share of our Class B Common Stock has ten votes, while each share
of our Class C Common Stock has one vote. Because of these disparate voting rights, Michael Dell and the
Susan Lieberman Dell Separate Property Trust (the “MD stockholders”) and certain investment
funds affiliated with Silver Lake Partners (the “SLP stockholders”) collectively held common
stock representing approximately 95.2% of the total voting power of our outstanding common stock as of
February 3, 2023. The limited ability of holders of the Class C Common Stock to influence matters
requiring stockholder approval may adversely affect the market price of the Class C Common Stock.
In
addition, in recent years, FTSE Russell and S&P Dow Jones changed their eligibility criteria to exclude
new companies with multiple classes of shares of common stock from being added to certain stock indices.
FTSE Russell instituted a requirement that new and, beginning in September 2022, existing constituents of
its indices have greater than 5% of their voting rights in the hands of public stockholders, as calculated
by FTSE Russell, whereas S&P Dow Jones announced that companies with multiple
share
classes, such as Dell Technologies, will not be eligible for inclusion in the S&P 500, S&P MidCap
400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Other major stock indices
might adopt similar requirements in the future. FTSE Russell’s determination may change at any time.
Under the current criteria, at a minimum, our multi-class capital structure makes our Class C Common Stock
ineligible for inclusion in specified S&P Dow Jones indices, including those making up the S&P
Composite 1500, and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that
track these indices will not invest in the Class C Common Stock. It is unclear what effect, if any,
exclusion from any indices has on the valuations of the affected publicly-traded companies. It is possible
that such policies may depress the valuations of public companies excluded from such indices compared to
valuations of companies that are included.
Future
sales, or the perception of future sales, of a substantial amount of shares of the Class C Common Stock
could depress the trading price of the Class C Common Stock.
Sales
of a substantial number of shares of the Class C Common Stock in the public market, or the perception that
these sales may occur, could adversely affect the market price of the Class C Common Stock, which could make
it more difficult for investors to sell their shares of Class C Common Stock at a time and price that they
consider appropriate. These sales, or the possibility that these sales may occur, also could impair our
ability to sell equity securities in the future at a time and at a price we deem appropriate, and our
ability to use Class C Common Stock as consideration for acquisitions of other businesses, investments, or
other corporate purposes.
As
of February 3, 2023, we had a total of approximately 242 million shares of Class C Common Stock
outstanding.
As
of February 3, 2023, the 378,224,977 outstanding shares of Class A Common Stock held by the
MD stockholders and the 95,350,227 outstanding shares of Class B Common Stock held by the SLP stockholders
are convertible into shares of Class C Common Stock at any time on a one-to-one basis. Such shares, upon any
conversion into shares of Class C Common Stock, will be eligible for resale in the public market pursuant to
Rule 144 under the Securities Act of 1933 (the “Securities Act”), subject to compliance with
conditions of Rule 144.
We
have entered into a registration rights agreement with holders of 378,224,977 outstanding shares of
Class A Common Stock (which are convertible into the same number of shares of Class C Common
Stock), holders of all of the 95,350,227 outstanding shares of Class B Common Stock (which are
convertible into the same number of shares of Class C Common Stock), and holders of approximately 6,000,000
outstanding shares of Class C Common Stock, pursuant to which we granted such holders and their permitted
transferees shelf, demand and/or piggyback registration rights with respect to such shares. Registration of
those shares under the Securities Act would permit such holders to sell the shares into the public market.
Further,
as of February 3, 2023, 52,112,831 shares of Class C Common Stock that were issuable upon the
exercise, vesting, or settlement of outstanding stock options, restricted stock units, or deferred stock
units under our stock incentive plan, all of which would have been, upon issuance, eligible for sale in the
public market, subject where applicable to compliance with Rule 144, and an additional 28,075,072 shares of
Class C Common Stock were authorized and reserved for issuance pursuant to potential future awards under the
stock incentive plan. We also may issue additional stock options in the future that may be exercised for
additional shares of Class C Common Stock and additional restricted stock units or deferred stock units that
may vest. We expect that all shares of Class C Common Stock issuable with respect to such awards will be
registered under one or more registration statements on Form S-8 under the Securities Act and available for
sale in the open market.
We
are controlled by the MD stockholders, who, together with the SLP stockholders, collectively own a
substantial majority of our common stock and are able to effectively control our actions, including approval
of mergers and other significant corporate transactions.
By
reason of their ownership of Class A Common Stock possessing a majority of the aggregate votes entitled to
be cast by holders of all outstanding shares of our common stock voting together as a single class, the MD
stockholders have the ability to approve any matter submitted to the vote of all of the outstanding shares
of the common stock voting together as a single class. Through their control, the MD stockholders are able
to control our actions, including actions related to the election of our directors and directors of our
subsidiaries, amendments to our organizational documents, and the approval of significant corporate
transactions, including mergers and sales of substantially all of our assets that our stockholders may deem
advantageous. For example, although our bylaws provide that the number of directors will be fixed by
resolution of the Board of Directors, our stockholders may adopt, amend, or repeal the bylaws in accordance
with the Delaware General Corporation Law. Through their control, the MD stockholders therefore may amend
our bylaws to change the number of directors (within the limits of the certificate of incorporation),
notwithstanding any determination by the Board of Directors regarding board size.
Further,
as of February 3, 2023, the MD stockholders and the SLP stockholders collectively beneficially owned
67.0% of our outstanding common stock. This concentration of ownership together with the disparate voting
rights of our common stock may delay or deter possible changes in control of Dell Technologies, which may
reduce the value of an investment in the Class C Common Stock. So long as the MD stockholders and the SLP
stockholders continue to own common stock representing a significant amount of the combined voting power of
our outstanding common stock, even if such amount is, individually or in the aggregate, less than 50%, such
stockholders will continue to be able to strongly influence our decisions.
In
addition, the MD stockholders and the SLP stockholders, respectively, have the right to nominate a number of
individuals for election as Group I Directors (who constitute all but one of our directors), which is equal
to the percentage of the total voting power for the regular election of directors beneficially owned by the
MD stockholders or by the SLP stockholders multiplied by the number of directors then on the Board of
Directors who are not members of the audit committee, rounded up to the nearest whole number. Further, so
long as the MD stockholders or the SLP stockholders each beneficially own at least 5% of all outstanding
shares of the common stock entitled to vote generally in the election of directors, each of the MD
stockholders or the SLP stockholders, as applicable, are entitled to nominate at least one individual for
election as a Group I Director.
The
MD stockholders, the MSD Partners stockholders, and the SLP stockholders and their respective affiliates may
have interests that conflict with the interests of other stockholders or those of Dell Technologies.
In
the ordinary course of their business activities, the MD stockholders, certain investment funds affiliated
with an investment firm formed by principals of the firm that manages the capital of Michael Dell and his
family (the “MSD Partners stockholders”), and the SLP stockholders and their respective
affiliates may engage in activities in which their interests conflict with our interests or those of other
stockholders. Our certificate of incorporation provides that none of the MD stockholders, the MSD Partners
stockholders, the SLP stockholders, nor any of their respective affiliates or any director or officer of the
Company who is also a director, officer, employee, managing director, or other affiliate (other than Michael
Dell) have any duty to refrain from engaging, directly or indirectly, in the same business activities or
similar business activities or lines of business in which we operate. The MD stockholders, the MSD Partners
stockholders, and the SLP stockholders also may pursue acquisition opportunities that may be complementary
to our business and, as a result, those acquisition opportunities may not be available to us. In addition,
such stockholders may have an interest in pursuing acquisitions, divestitures, and other transactions that,
in their judgment, could enhance the value of their investment in Dell Technologies, even though such
transactions might involve risks to other stockholders.
Because
we are a “controlled company” within the meaning of the rules of the New York Stock Exchange
and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements,
holders of Class C Common Stock do not have the same protections afforded to stockholders of companies that
are subject to such requirements.
We
are a “controlled company” within the meaning of the rules of the New York Stock Exchange (the
“NYSE”) because the MD stockholders hold common stock representing more than 50% of the voting
power in the election of directors. As a controlled company, we may elect not to comply with certain
corporate governance requirements under NYSE rules, including the requirements that we have a board composed
of a majority of “independent directors,” as defined under NYSE rules, and that we have a
compensation committee and a nominating/corporate governance committee each composed entirely of independent
directors. Although we currently maintain a board composed of a majority of independent directors, we
currently utilize the exemptions relating to committee composition and expect to continue to utilize those
exemptions. As a result, none of the committees of the Board of Directors, other than the audit committee,
consists entirely of independent directors. Further, we may decide in the future to change our board
membership so that the board is not composed of a majority of independent directors. Accordingly, holders of
Class C Common Stock do not have the same protections afforded to stockholders of companies that are subject
to all of the NYSE’s corporate governance requirements.
Our
certificate of incorporation designates a state court of the State of Delaware and the U.S. federal district
courts as the sole and exclusive forum for certain types of legal actions and proceedings that may be
initiated by our stockholders, which could limit the ability of the holders of Class C Common Stock to
obtain a favorable judicial forum for disputes with us or with our directors, officers, or controlling
stockholders.
Our
certificate of incorporation contains provisions requiring an exclusive forum for specified types of legal
actions and proceedings.
Under
our certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the
sole and exclusive forum will be, to the fullest extent permitted by law, a state court located within the
State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal
district court for the District of Delaware) for:
•any
derivative action or proceeding brought on our behalf;
•any
action asserting a claim of breach of a fiduciary duty owed by any director or officer or stockholder of
Dell Technologies to us or our stockholders;
•any
action asserting a claim against Dell Technologies or any director or officer or stockholder of Dell
Technologies arising pursuant to any provision of the Delaware General Corporation Law or of our certificate
of incorporation or bylaws; or
•any
action asserting a claim against us or any director or officer or stockholder of Dell Technologies governed
by our internal affairs doctrine.
The
foregoing Delaware exclusive forum provision does not apply to suits brought to enforce any liability or
duty created by the Exchange Act or the rules or regulations thereunder, or any other claim over which the
federal district courts of the United States have exclusive jurisdiction.
In
addition to the Delaware exclusive forum provision, our certification of incorporation contains a provision
stating that, unless we consent in writing to the selection of an alternative forum, the federal courts of
the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of
action arising under the Securities Act.
These
provisions of our certificate of incorporation could limit the ability of the holders of the Class C Common
Stock to obtain a favorable judicial forum for disputes with us or with our directors, officers, or
controlling stockholders, which may discourage such lawsuits against us and our directors, officers, and
stockholders.
Alternatively,
if a court were to find these provisions inapplicable to, or unenforceable in respect of, one or more of the
specified types of actions or proceedings, we may incur additional costs associated with resolving such
matters in other jurisdictions, which could adversely affect our business, financial condition, and results
of operations.
We
may not continue to pay dividends or to pay dividends at the same rate as announced in March 2023.
Our
payment of dividends, as well as the rate at which we pay dividends, is solely at the discretion of our
Board of Directors. Further, dividend payments, if any, are subject to our financial results and the
availability of statutory surplus to pay dividends. These factors could result in a change to our current
dividend policy.
ITEM 1B —
UNRESOLVED STAFF COMMENTS
None.
ITEM 2 —
PROPERTIES
Our
principal executive offices and global headquarters are located at One Dell Way, Round Rock, Texas.
As
of February 3, 2023, as shown in the following table, we owned or leased 21.3 million square feet of
office, manufacturing, and warehouse space worldwide:
|
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|
|
|
|
|
|
|
|
|
Owned
|
|
Leased
|
|
|
|
|
|
(in
millions) |
|
U.S.
facilities |
8.1
|
|
|
1.5
|
|
|
International
facilities |
4.4
|
|
|
7.3
|
|
|
Total
(a) |
12.5
|
|
|
8.8
|
|
____________________
(a) Includes
3.5 million square feet of subleased or vacant space.
As
of February 3, 2023, our facilities consisted of business centers, which include facilities that
contain operations for sales, technical support, administrative, and support functions; manufacturing
operations; and research and development centers. For additional information about our facilities, including
the location of certain facilities, see “Item 1 — Business — Manufacturing and
Materials.”
Because
of the interrelation of the products and services offered in each of our segments, we generally do not
designate our properties to any segment. With limited exceptions, each property is used at least in part by
both of our segments, and we retain the flexibility to make future use of each of the properties available
to each segment.
We
believe that our existing properties are suitable and adequate for our current needs. We will continue to
assess our facilities requirements as part of normal business operations.
ITEM 3 —
LEGAL PROCEEDINGS
The
information required by this Item 3 is incorporated herein by reference to the information set forth under
the caption “Legal Matters” in Note 12 of the Notes
to the Consolidated Financial Statements
included in “Part II — Item 8 — Financial Statements and
Supplementary Data.”
ITEM 4 —
MINE SAFETY DISCLOSURES
Not
applicable.
PART
II
ITEM
5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market
for Class C Common Stock
Our
Class C Common Stock is listed and traded on the New York Stock Exchange under the symbol
“DELL.” The Class C Common Stock began trading on the NYSE on December 28,
2018.
There
is no public market for our Class A Common Stock or Class B Common Stock. No shares of our Class D Common
Stock were outstanding as of February 3, 2023.
Holders
As
of March 27, 2023, there were 3,982 holders of record of our Class C Common Stock, six holders of
record of our Class A Common Stock, and six holders of record of our Class B Common Stock. The number of
record holders does not include individuals or entities that beneficially own shares of any class of our
common stock, but whose shares are held of record by a broker, bank, or other nominee.
Dividends
During
Fiscal 2023, our Board of Directors adopted a dividend policy providing for our payment of quarterly cash
dividends on our common stock at a rate of $0.33 per share per fiscal quarter beginning in the first quarter
of Fiscal 2023. During Fiscal 2023, the Company paid the following dividends:
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| Declaration
Date |
|
Record
Date |
|
Payment
Date |
|
Dividend
per Share |
|
Amount
(in
millions)
|
|
February
24, 2022 |
|
April
20, 2022 |
|
April
29, 2022 |
|
$
|
0.33
|
|
|
$
|
248
|
|
| June
7, 2022 |
|
July
20, 2022 |
|
July
29, 2022 |
|
$
|
0.33
|
|
|
$
|
242
|
|
|
September
6, 2022 |
|
October
19, 2022 |
|
October
28, 2022 |
|
$
|
0.33
|
|
|
$
|
238
|
|
|
December
6, 2022 |
|
January
25, 2023 |
|
February
3, 2023 |
|
$
|
0.33
|
|
|
$
|
236
|
|
On
March 2, 2023, we announced that the Board of Directors approved a 12% increase in the quarterly dividend
rate to a rate of $0.37 per share per fiscal quarter beginning in the first quarter of Fiscal 2024.
The
dividend policy and the declaration and payment of each quarterly cash dividend will be subject to the
continuing determination by the Board of Directors that the policy and the declaration of dividends
thereunder are in the best interests of our stockholders and are in compliance with applicable law. The
Board of Directors retains the power to modify, suspend, or cancel the dividend policy in any manner and at
any time that it may deem necessary or appropriate.
Purchases
of Equity Securities
The
following table presents information with respect to our purchases of Class C Common Stock during the fourth
quarter of Fiscal 2023.
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|
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|
|
| Period
|
Total
Number of Shares Purchased |
|
Weighted
Average Price Paid per Share |
|
Total
Number of Shares Purchased as Part of Publicly Announced Programs |
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Programs |
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except per share amounts) |
|
Repurchases
from October 29, 2022 to November 25, 2022 |
2.0
|
|
|
$
|
40.18
|
|
|
2.0
|
|
|
$
|
1,562
|
|
|
Repurchases
from November 26, 2022 to December 30, 2022 |
1.0
|
|
|
$
|
41.70
|
|
|
1.0
|
|
|
$
|
1,521
|
|
|
Repurchases
from December 31, 2022 to February 3, 2023 |
0.7
|
|
|
$
|
40.79
|
|
|
0.7
|
|
|
$
|
1,493
|
|
|
Total
|
3.7
|
|
|
|
|
3.7
|
|
|
|
Effective
as of September 23, 2021, our Board of Directors approved our current stock repurchase program with no
established expiration date under which we may repurchase from time to time, through open market purchases,
block trades, or accelerated or other structured share purchases, up to $5 billion of shares of Class C
Common Stock, exclusive of any fees, commissions, or other expenses related to such repurchases.
Stock
Performance Graph
Class
C Common Stock
The
following graph compares the cumulative total return on the Company’s Class C Common Stock for the
period from December 28, 2018, the date on which the Class C Common Stock began trading on the NYSE, through
February 3, 2023, with the total return over the same period on the S&P 500 Index and the S&P
500 Information Technology Index. The graph assumes that $100 was invested on December 28, 2018 in the Class
C Common Stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. The
comparisons in the graph are based on historical data.
Effective
for this Annual Report on Form 10-K, the Company elected to change the comparative industry peer group to
include the S&P 500 Information Technology Index. The Company believes that the S&P 500 Information
Technology Index provides a more meaningful and representative comparison to the performance of the Class C
Common Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
28, 2018 |
|
February
1, 2019 |
|
January
31, 2020 |
|
January
29, 2021 |
|
January
28, 2022 |
|
February
3, 2023 |
|
Class
C Common Stock |
|
$100.00
|
|
$109.29
|
|
$107.35
|
|
$160.44
|
|
$244.72
|
|
$189.76
|
|
S&P
500 Index |
|
$100.00
|
|
$109.06
|
|
$132.57
|
|
$155.44
|
|
$188.08
|
|
$178.39
|
|
S&P
500 Information Technology Index |
|
$100.00
|
|
$108.63
|
|
$157.71
|
|
$216.26
|
|
$266.26
|
|
$240.39
|
|
S&P
500 Systems Software Index |
|
$100.00
|
|
$104.13
|
|
$164.89
|
|
$226.05
|
|
$300.81
|
|
$258.99
|
The
preceding stock performance graph shall not be deemed to be incorporated by reference by means of any
general statement incorporating by reference this Annual Report on Form 10-K into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Dell Technologies
specifically incorporates such information by reference, and shall not otherwise be deemed filed under such
Acts.
ITEM 6 —
[RESERVED]
ITEM
7 —
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This
management’s discussion and analysis should be read in conjunction with the audited Consolidated
Financial Statements and accompanying Notes included in this Annual Report on Form 10-K. This section of
this Form 10-K generally discusses Fiscal 2023 and Fiscal 2022 items and presents year-to-year comparisons
between Fiscal 2023 and Fiscal 2022 results. Discussion of Fiscal 2021 items and year-to-year comparisons
between Fiscal 2022 and Fiscal 2021 results that are not included in this Form 10-K are presented in
“Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended
January 28, 2022, as filed with the SEC on March 24, 2022, which is available free of charge on the
SEC’s website at www.sec.gov and on our Investor Relations website at
investors.delltechnologies.com.
In
addition to historical financial information, the following discussion contains forward-looking statements
that reflect our plans, estimates, and beliefs, and that are subject to numerous risks and uncertainties.
Our actual results may differ materially from those expressed or implied in any forward-looking
statements.
Unless
otherwise indicated, all results presented are prepared in a manner that complies, in all material respects,
with generally accepted accounting principles in the United States of America (“GAAP”). Unless
otherwise indicated, all changes identified for the current-period results represent comparisons to results
for the prior corresponding fiscal period.
Unless
the context indicates otherwise, references in this report to “we,” “us,”
“our,” the “Company,” and “Dell Technologies” mean Dell Technologies
Inc. and its consolidated subsidiaries, references to “Dell” mean Dell Inc. and Dell
Inc.’s consolidated subsidiaries, and references to “EMC” mean EMC Corporation and EMC
Corporation’s consolidated subsidiaries.
On
November 1, 2021, the Company completed its spin-off of VMware, Inc. (individually and together with its
consolidated subsidiaries, “VMware”). In accordance with applicable accounting guidance, the
results of VMware, excluding Dell's resale of VMware offerings, are presented as discontinued operations in
the Consolidated Statements of Income and, as such, have been excluded from both continuing operations and
segment results for all periods prior to the spin-off. The Consolidated Statements of Cash Flows are
presented on a consolidated basis for both continuing operations and discontinued operations for all periods
presented.
Our
fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal
years ended February 3, 2023, January 28, 2022, and January 29, 2021 as “Fiscal
2023,” “Fiscal 2022,” and “Fiscal 2021,” respectively. Fiscal 2023 included 53
weeks, while Fiscal 2022 and Fiscal 2021 each included 52 weeks.
INTRODUCTION
Company
Overview
Dell
Technologies helps organizations build their digital futures and individuals transform how they work, live,
and play. We provide customers with one of the industry’s broadest and most innovative solutions
portfolio for the data era, including traditional infrastructure and extending to multi-cloud environments.
Our differentiated and holistic IT solutions benefit our results and enable us to capture revenue growth as
customer spending priorities evolve.
Dell
Technologies’ integrated solutions help customers modernize their IT infrastructure, manage and
operate in a multicloud world, address workforce transformation, and provide critical solutions that keep
people and organizations connected. We are helping customers accelerate their digital transformations to
improve and strengthen business and workforce productivity. With our extensive portfolio and our commitment
to innovation, we offer secure, integrated solutions that extend from the edge to the core to the cloud, and
we are at the forefront of software-defined and cloud native infrastructure solutions.
Dell
Technologies operates globally in approximately 180 countries, supported by a world-class organization
across key functional areas, including technology and product development, marketing, sales, financial
services, and services. We have a number of durable competitive advantages that provide a critical
foundation for our success. Our go-to-market engine includes a 31,000-person direct sales force and a global
network of approximately 240,000 channel partners. We employ approximately 35,000 full-time service and
support professionals and maintain approximately 2,200 vendor-managed service centers. We also
manage
a world-class supply chain at significant scale with approximately $77 billion in annual procurement
expenditures and over 725 parts distribution centers.
We
further strengthen customer relationships through our financing offerings provided by Dell Financial
Services and its affiliates (“DFS”) and our flexible consumption models, including utility,
subscription, and as-a-Service models, which we continue to expand under Dell APEX. These offerings enable
our customers to pay over time and provide them with financial flexibility to meet their changing
technological requirements.
Our
Vision and Strategy
Our
vision is to become the most essential technology company for the data era. We help customers address their
evolving IT needs and their broader digital transformation objectives as they embrace today’s
multicloud world. We intend to execute our vision by focusing on two strategic priorities:
•Grow
and modernize our core offerings in the markets in which we predominantly compete
•Pursue
attractive new growth opportunities such as Edge, Telecom, data management, and as-a-Service consumption
models
We
believe we are uniquely positioned in the data and multicloud era and that our results will continue to
benefit from our durable competitive advantages. We intend to continue to execute our business model and
position our company for long-term success while balancing liquidity, profitability, and growth and keeping
our purpose at the forefront of our decision-making: to create technologies that drive human progress.
The
IT industry is rapidly evolving with demand for simpler, more agile solutions as companies leverage multiple
clouds across their increasingly complex IT environments. To meet our customer needs, we continue to invest
in research and development, sales, and other key areas of our business to deliver superior products and
solutions capabilities and to drive long-term sustainable growth.
Products
and Services
We
design, develop, manufacture, market, sell, and support a wide range of comprehensive and integrated
solutions, products, and services. We are organized into two business units, referred to as Infrastructure
Solutions Group and Client Solutions Group, which are our reportable segments.
•Infrastructure
Solutions Group (“ISG”)
— ISG enables our customers’ digital transformation with solutions that address the fundamental
shift to multicloud environments, machine learning, artificial intelligence, and data analytics. ISG helps
customers simplify, streamline, and automate cloud operations. ISG solutions are built for multicloud
environments and are optimized to run cloud native workloads in both public and private clouds, as well as
traditional on-premise workloads.
Our
comprehensive storage portfolio includes traditional as well as next-generation storage solutions, including
all-flash arrays, scale-out file, object platforms, hyper-converged infrastructure, and software-defined
storage. We have simplified our storage portfolio and continue to make enhancements to our storage offerings
that we expect will drive long-term improvements in the business.
Our
server portfolio includes high-performance rack, blade, and tower servers. Our servers are designed with the
capability to run high value workloads across customers’ IT environments, including artificial
intelligence, machine learning, and edge workloads. Our networking portfolio helps our business customers
transform and modernize their infrastructure, mobilize and enrich end-user experiences, and accelerate
business applications and processes.
Our
strengths in server, storage, and virtualization software solutions allow us to offer leading converged and
hyper-converged solutions, enabling our customers to accelerate their IT transformation with scalable
integrated solutions instead of building and assembling their own IT platforms. ISG also offers software,
peripherals and services, including configuration, and support and deployment.
Approximately
half of ISG revenue is generated by sales to customers in the Americas, with the remaining portion derived
from sales to customers in the Europe, Middle East, and Africa region (“EMEA”) and the
Asia-Pacific and Japan region (“APJ”).
•Client
Solutions Group (“CSG”)
— CSG includes branded PCs including notebooks, desktops, and workstations and branded peripherals
including displays and docking stations, as well as third-party software and peripherals. CSG also includes
services offerings, including support and deployment, configuration, and extended warranties. Our CSG
offerings are designed with our customers’ needs in mind and we seek to optimize performance,
reliability, manageability, design, and security.
Our
commercial portfolio provides our customers with solutions centered around flexibility to address their
complex needs such as IT modernization, hybrid work transformation, and other critical needs. Within our
high-end consumer offerings, we provide our customers with powerful performance, processing, and end-user
experiences.
Approximately
half of CSG revenue is generated by sales to customers in the Americas, with the remaining portion derived
from sales to customers in EMEA and APJ.
Our
“other businesses,” described below, primarily consists of our resale of standalone offerings of
VMware, Inc. (individually and together with its subsidiaries, “VMware”), referred to as
“VMware Resale,” and offerings of SecureWorks Corp. (“Secureworks”). These
businesses are not classified as reportable segments, either individually or collectively.
•VMware
Resale consists
of our sale of standalone VMware offerings. Under our Commercial Framework Agreement with VMware discussed
in this report, Dell Technologies continues to act as a key channel partner for VMware, reselling
VMware’s offerings to our customers. This partnership is intended to facilitate mutually beneficial
growth for both Dell Technologies and VMware.
VMware
works with customers in the areas of hybrid and multicloud, modern applications, networking, security, and
digital workspaces, helping customers manage their IT resources across private clouds and complex
multicloud, multi-device environments.
•Secureworks
(NASDAQ: SCWX) is a leading global cybersecurity provider of technology-driven security solutions singularly
focused on protecting its customers by outpacing and outmaneuvering the adversary. The solutions offered by
Secureworks enable organizations of varying size and complexity to prevent security breaches, detect
malicious activity, respond rapidly when a security breach occurs, and identify emerging threats.
Our
offerings are continually evolving in response to customer needs. As a result, reclassifications of certain
products and services solutions in major product categories may be required. For further discussion
regarding our current reportable segments, see “Results of Operations — Business Unit
Results” and Note 19 of the Notes to the Consolidated Financial Statements included in this report.
Dell
Financial Services
DFS
supports our businesses by offering and arranging various financing options and services for our customers
globally. DFS originates, collects, and services customer receivables primarily related to the purchase or
use of our product, software, and services solutions. We also arrange financing for some of our customers in
various countries where DFS does not currently operate as a captive entity. We further strengthen customer
relationships through flexible consumption models, including utility, subscription, and as-a-Service models,
which enable us to offer our customers the option to pay over time to provide them with financial
flexibility to meet their changing technological requirements. DFS funded $9.7 billion of originations in
Fiscal 2023 and maintains an $11 billion global portfolio of high-quality financing receivables. The results
of these operations are allocated to our segments based on the underlying product or service financed and
may be impacted by, among other items, changes in the interest rate environment and the translation of those
changes to pricing. For additional information about our financing arrangements, see Note 6 of the Notes to
the Consolidated Financial Statements included in this report.
Product
Backlog
Product
backlog represents the value of unfulfilled manufacturing orders and is included as a component of remaining
performance obligations to the extent we determine that the manufacturing orders are non-cancelable. Our
business model generally gives us the ability to optimize product backlog at any point in time, such as by
expediting shipping or prioritizing customer orders for products that have shorter lead times.
Recent
Transactions
Spin-Off
of VMware, Inc.
— On November 1, 2021, we completed our spin-off of VMware by means of a special stock dividend (the
“VMware Spin-off”). The VMware Spin-off was effectuated pursuant to a Separation and
Distribution Agreement, dated as of April 14, 2021, between Dell Technologies and VMware. As part of the
transaction, VMware paid a special cash dividend, pro rata, to each holder of VMware common stock in an
aggregate amount equal to $11.5 billion, of which Dell Technologies received $9.3 billion.
In
connection with and upon completion of the VMware Spin-off, we entered into a Commercial Framework Agreement
(the “CFA”) with VMware, which provides the framework under which we and VMware continue our
commercial relationship. Pursuant to the CFA, we continue to act as a distributor of VMware’s
standalone products and services and purchase such products and services for resale to customers. We also
continue to integrate VMware’s products and services with Dell Technologies’ offerings and sell
them to customers. The results of such operations are presented as continuing operations within our
Consolidated Statements of Income for all periods presented.
The
results of VMware, excluding Dell's resale of VMware offerings, are presented as discontinued operations in
the Consolidated Statements of Income and, as such, have been excluded from both continuing operations and
segment results for Fiscal 2021 and Fiscal 2022. The Consolidated Statements of Cash Flows are presented on
a consolidated basis for both continuing operations and discontinued operations. See Note 3 of the Notes to
the Consolidated Financial Statements included in this report for additional information about the VMware
Spin-off.
Boomi
Divestiture —
On
October 1, 2021, we completed the sale of Boomi, Inc. (“Boomi”) and certain related assets for a
total cash consideration of approximately $4.0 billion, resulting in a pre-tax gain on sale of
$4.0 billion. The Company ultimately recorded a $3.0 billion gain, net of $1.0 billion in tax
expense.
RSA
Divestiture
— On September 1, 2020, we completed the sale of RSA Security LLC (“RSA Security”) for
total cash consideration of approximately $2.1 billion, resulting in a pre-tax gain on sale of
$338 million. The Company ultimately recorded a $21 million loss net of taxes.
Prior
to the divestitures, the operating results of Boomi and RSA Security were included within other businesses
and did not qualify for presentation as discontinued operations.
Relationship
with VMware
VMware
is considered to be a related party of the Company as a result of Michael Dell’s ownership interests
in both Dell Technologies and VMware and Mr. Dell’s continued service as Chairman and Chief Executive
Officer of Dell Technologies and as Chairman of the Board of VMware, Inc. Following the completion of the
VMware Spin-off, the majority of transactions that occur between Dell Technologies and VMware consist of
Dell Technologies’ purchase of VMware products and services for resale, either on a standalone basis
or as a part of integrated offerings. For more information regarding related party transactions with VMware,
see Note 21 of the Notes to the Consolidated Financial Statements included in this report.
Strategic
Investments and Acquisitions
As
part of our strategy, we will continue to evaluate opportunities for strategic investments through our
venture capital investment arm, Dell Technologies Capital, with a focus on emerging technology areas that
are relevant to our business and that will complement our existing portfolio of solutions. Our investment
areas include storage, software-defined networking, management and orchestration, security, machine learning
and artificial intelligence, Big Data and analytics, cloud, edge computing, and software development
operations. The technologies or products these companies have under development are typically in the early
stages and may never have commercial value, which could result in a loss of a substantial part of our
investment in the companies.
During
Fiscal 2023, we recognized a net loss of $206 million on our strategic investments, which was generally
in line with overall public equity market declines. As of February 3, 2023 and January 28, 2022,
we held strategic investments in non-marketable securities of $1.3 billion and $1.4 billion, respectively.
See Note 5 of the Notes to the Consolidated Financial Statements included in this report for additional
information.
In
addition to these investments, we also may make disciplined acquisitions targeting businesses that advance
our strategic objectives and accelerate our innovation agenda.
Business
Trends and Challenges
Fiscal
2023 Significant Developments
—
During Fiscal 2023, we continued to execute against our strategy and performed well in a challenging
macroeconomic environment, generating net revenue and operating income growth. We benefited from our
holistic offerings across IT infrastructure as customer spending priorities changed and we saw a shift in
the mix of our net revenue towards ISG.
As
the fiscal year progressed, we experienced rapidly evolving macroeconomic conditions which impacted the
overall demand environment, the availability and cost of components and logistics, and the foreign currency
environment. In response to these conditions, we took certain measures intended to mitigate impacts to our
operations, profitability, and liquidity while continuing to proactively address our customers’
demands. Such measures included disciplined pricing as well as, beginning in the second fiscal quarter,
actions to decrease operating expenses, including limiting both discretionary spending and, as announced on
February 6, 2023, a decision to reduce our workforce by approximately 5% to align our investments more
closely with our previously discussed strategic and customer priorities.
The
change in the macroeconomic environment had the greatest effect on CSG, which was impacted by industry-wide
demand declines beginning in the first half of Fiscal 2023 that worsened throughout the remainder of the
year. Such dynamics impacted CSG net revenue growth when compared to Fiscal 2022, during which we
experienced continued strong demand as a result of global economic recovery. Within ISG, demand for our
server offerings began to moderate in the second quarter of Fiscal 2023, with a decline beginning in the
third fiscal quarter as customers exercised caution in response to the macroeconomic conditions.
The
impact of the macroeconomic environment caused a shift in component availability as the year progressed. For
the first half of Fiscal 2023, we continued to be affected by industry-wide constraints in the supply of
limited-source components, primarily within ISG. These constraints began to diminish during the third
quarter of Fiscal 2023, primarily as a result of the aforementioned declines in the overall demand
environment as well as improving supply positions. As a result, during Fiscal 2023, we lowered our backlog
across both CSG and ISG from previously elevated levels.
In
addition to impacts to both supply and demand, our input costs, which include logistics and component costs,
were also impacted throughout the fiscal year. Component costs were deflationary for Fiscal 2023. Although
logistics costs remained elevated during the first half of Fiscal 2023, we experienced a significant
reduction in these costs during the second half of Fiscal 2023 as we began to see declining rate costs
coupled with a reduction in the need to utilize expedited shipments. We expect that our logistics costs will
continue to decline as we enter Fiscal 2024.
We
expect that the macroeconomic environment will continue to impact our consolidated financial results in
Fiscal 2024. We currently anticipate a decline in net revenue for the full fiscal year, notably in the first
half of the year, which may put pressure on operating margins. We will continue to actively monitor global
events and make prudent decisions to navigate this environment. We believe our durable competitive
advantages continue to position us for long-term success.
Supply
Chain
—
Dell Technologies maintains single-source and limited-source supplier relationships for certain components
because the relationships are advantageous in the areas of performance, quality, support, delivery,
capacity, and price considerations.
Component
cost trends are dependent on the strength or weakness of actual end-user demand and supply dynamics, which
will continue to evolve and ultimately impact the translation of the cost environment to pricing and
operating results.
We
anticipate that overall costs of our key commodities will remain deflationary through the first half of
Fiscal 2024. We expect this favorability to be partially offset by the impacts of industry-wide price
increases of certain processors that will affect our cost of net revenue beginning in Fiscal 2024.
Foreign
Currency Exposure
— We manage our business on a U.S. dollar basis. However, we have a large global presence, generating
approximately half of our net revenue from sales to customers outside of the United States during Fiscal
2023, Fiscal 2022, and Fiscal 2021. As a result, our operating results can be, and particularly in recent
periods have been, impacted by fluctuations in foreign currency exchange rates. We utilize a comprehensive
hedging strategy intended to mitigate the impact of foreign currency volatility over time, and we adjust
pricing when possible to further minimize foreign currency impacts.
Ukraine
War
— We are monitoring and responding to effects of the ongoing war in Ukraine. When Russia invaded
Ukraine, we made the decision to not sell, service, or support products in Russia, Belarus, and restricted
regions of Ukraine. Operations in Russia and Ukraine accounted for less than 1% of net revenue in Fiscal
2022. During Fiscal 2023, we recognized $171 million in costs associated with exiting our business in
Russia, primarily related to asset impairments and other exit related costs. We have resumed product sales
to non-sanctioned areas in Ukraine. We are focused on providing products and support to Ukrainian customers
as they rebuild infrastructure and restore businesses and the financial sector.
The
war and the related economic sanctions are impacting markets worldwide. Our business may be adversely
affected by effects of the war and such sanctions, including supply chain disruptions, product shipping
delays, macroeconomic impacts resulting from the exclusion of Russian financial institutions from the global
banking system, volatility in foreign exchange rates and interest rates, inflationary pressures, and
heightened cybersecurity and data theft threats. The full impact of the war on our business operations and
financial performance will depend on future developments. We will continue to monitor and assess the related
restrictions and other effects and pursue prudent decisions for our team members, customers, and
business.
COVID-19
Pandemic and Response
—
We continue to monitor the COVID-19 pandemic and variants of the coronavirus, as well as the impact the
pandemic has on our employees, customers, business partners, and communities. We will continue to actively
monitor global events and pursue prudent decisions to navigate in this uncertain and ever-changing
environment.
Inflation
Reduction Act
—
During the third quarter of Fiscal 2023, the Inflation Reduction Act of 2022 (the “2022 Act”)
was enacted into law. The statute includes a 15% corporate alternative minimum tax on adjusted financial
statement income which is effective for Fiscal 2024. The new law also imposes a 1% excise tax on share
repurchases, which is effective for repurchases made after December 31, 2022. We do not expect the 2022 Act
to have a material impact on our consolidated financial statements or on our capital allocation decisions.
We will continue to evaluate the law’s impact as further information becomes available.
Other
Macroeconomic Risks and Uncertainties
— The impacts of trade protection measures, including increases in tariffs and trade barriers, changes
in government policies and international trade arrangements, and geopolitical issues may affect our ability
to conduct business in some non-U.S. markets. We monitor and seek to mitigate these risks with adjustments
to our manufacturing, supply chain, and distribution networks.
ISG
—
We expect that ISG will continue to be impacted by the changing nature of the IT infrastructure market and
competitive environment. With our scale and strong solutions portfolio, we believe we are well-positioned to
respond to ongoing competitive dynamics.
Through
our collaborative, customer-focused approach to innovation, we strive to deliver new and relevant solutions
and software to our customers quickly and efficiently. We continue to focus on customer base expansion and
lifetime value of customer relationships. Our customer base includes a growing number of service providers,
such as cloud service providers, Software-as-a-Service companies, consumer webtech providers, and
telecommunications companies. These service providers turn to Dell Technologies for our advanced solutions
that enable efficient infrastructure and service delivery at cloud scale.
While
we are anticipating challenges in the demand environment as a result of customer caution in response to
macroeconomic conditions, we expect that data growth will continue to generate long-term demand for our
storage solutions and services. Cloud native applications are expected to continue to be a key trend in the
infrastructure market. We benefit from offering solutions that address the emerging trends of enterprises
deploying software-defined storage, hyper-converged infrastructure, and modular solutions based on
server-centric architectures. These trends are changing the way customers are consuming our storage
offerings. We continue to expand our offerings in external storage arrays, which incorporate flexible,
cloud-based functionality. Our storage business is subject to seasonal trends which we expect to continue.
We
anticipate that ISG will benefit from the continued expansion of, and advances in, Artificial Intelligence
(“AI”). Through our server and storage offerings, as well as our AI validated design solutions,
we are well positioned to capture growth and support our customers needs. We continue to optimize and
enhance our offerings to run high value and transformational workloads, such as AI.
CSG
— Our
CSG offerings are an important element of our strategy, generating strong cash flow and opportunities for
cross-selling of complementary solutions. Within CSG, we are focused on commercial and high-end consumer
computing devices as we believe they are the most stable and profitable segments of the PC market.
Competitive dynamics continue to be a factor in our CSG business and continue to impact pricing and
operating results.
We
expect industry-wide demand will remain a challenge as we begin Fiscal 2024. We remain committed to our
long-term CSG strategy and will continue to make investments to innovate across the portfolio. We expect
that the CSG demand environment will continue to be subject to seasonal trends.
Recurring
Revenue and Consumption Models
—
Our customers are seeking new and innovative models that address how they consume our solutions. In part,
customers are looking to remove unnecessary cost and complexity, align solution offerings to their business
needs, and provide consistent operations throughout their IT enterprise.
We
offer options including as-a-Service, subscription, utility, leases, loans, and immediate pay models
designed to match customers' consumption and financing preferences. We believe these options are
particularly advantageous for our customers during times of economic uncertainty as they provide customers
with financial flexibility to further enable them to procure our solutions.
These
offerings typically result in multiyear agreements which generate recurring revenue streams over the term of
the arrangement. We expect that these offerings will further strengthen our customer relationships and
provide a foundation for growth in recurring revenue. We define recurring revenue as revenue recognized that
is primarily related to hardware and software maintenance as well as subscription, as-a-Service, usage-based
offerings, and operating leases.
Key
Performance Metrics
Our
key performance metrics include net revenue, operating income, and cash flows from operations, which are
discussed elsewhere in this management’s discussion and analysis.
NON-GAAP
FINANCIAL MEASURES
In
this management’s discussion and analysis, we use supplemental measures of our performance which are
derived from our consolidated financial information but which are not presented in our consolidated
financial statements prepared in accordance with GAAP. These non-GAAP financial measures include non-GAAP
product net revenue; non-GAAP services net revenue; non-GAAP net revenue; non-GAAP product gross margin;
non-GAAP services gross margin; non-GAAP gross margin; non-GAAP operating expenses; non-GAAP operating
income; non-GAAP net income; earnings before interest and other, net, taxes, depreciation, and amortization
(“EBITDA”); and adjusted EBITDA. The non-GAAP financial measures are not meant to be considered
as indicators of performance in isolation from or as a substitute for net revenue, gross margin, operating
expenses, operating income, or net income from continuing operations prepared in accordance with GAAP, and
should be read only in conjunction with financial information presented on a GAAP basis.
Effective
in the first quarter of Fiscal 2023, non-GAAP product net revenue, services net revenue, and net revenue no
longer differ from the most comparable GAAP financial measures. Such non-GAAP financial measures are
provided below for all periods presented to show the impact of purchase accounting adjustments on such
financial measures in prior periods.
We
use non-GAAP financial measures to supplement financial information presented on a GAAP basis. Management
considers these non-GAAP measures in evaluating our operating trends and performance. Moreover, we believe
these non-GAAP financial measures provide our stakeholders with useful and transparent information to help
them evaluate our operating results by facilitating an enhanced understanding of our operating performance
and enabling them to make more meaningful period to period comparisons. There are limitations to the use of
the non-GAAP financial measures presented in this report. Our non-GAAP financial measures may not be
comparable to similarly titled measures of other companies. Other companies, including companies in our
industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those
measures for comparative purposes.
Non-GAAP
product net revenue, non-GAAP services net revenue, non-GAAP net revenue, non-GAAP product gross margin,
non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating
income, and non-GAAP net income, as defined by us, exclude amortization of intangible assets, the impact of
purchase accounting, transaction-related expenses, stock-based compensation expense, other corporate
expenses and, for non-GAAP net income, fair value adjustments on equity adjustments and an aggregate
adjustment for income taxes. As the excluded items have a material impact on our financial results, our
management compensates for this limitation by relying primarily on our GAAP results and using non-GAAP
financial measures supplementally or for projections when comparable GAAP financial measures are not
available.
Reconciliations
of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented
below. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP
financial measures for each of the periods presented. The discussion below includes information on each of
the excluded items as well as our reasons for excluding them from our non-GAAP results. In future fiscal
periods, we may exclude such items and may incur income and expenses similar to these excluded items.
Accordingly, the exclusion of these items and other similar items in our non-GAAP presentation should not be
interpreted as implying that these items are non-recurring, infrequent, or unusual.
The
following is a summary of the items excluded from the most comparable GAAP financial measures to calculate
our non-GAAP financial measures:
•Amortization
of Intangible Assets
—
Amortization
of intangible assets primarily consists of amortization of customer relationships, developed technology, and
trade names. In connection with our acquisition by merger of EMC, referred to as the “EMC merger
transaction,” and the acquisition of Dell Inc. by Dell Technologies Inc., referred to as the
“going-private transaction,” all of the tangible and intangible assets and liabilities of EMC
and Dell Inc. and its consolidated subsidiaries, respectively, were accounted for and recognized at fair
value on the transaction dates. Accordingly, for the periods presented, amortization of intangible assets
represents amortization associated with intangible assets recognized in connection with the EMC merger
transaction and the going-private transaction. Amortization charges for purchased intangible assets are
significantly impacted by the timing and magnitude of our acquisitions, and these charges may vary in amount
from period to period. We exclude these charges for purposes of calculating the non-GAAP financial measures
presented below to facilitate an enhanced understanding of our current operating performance and provide
more meaningful period to period comparisons.
•Impact
of Purchase Accounting
—
The
impact of purchase accounting includes purchase accounting adjustments primarily related to the EMC merger
transaction recorded under the acquisition method of accounting in accordance with the accounting guidance
for business combinations. Accordingly, all of the assets and liabilities acquired in such transactions were
accounted for and recognized at fair value as of the respective transaction dates, and the fair value
adjustments continue to amortize over the estimated useful lives in the periods following the transactions.
The fair value adjustments that are still amortizing primarily relate to property, plant, and equipment. We
believe that excluding the impact of purchase accounting for purposes of calculating the non-GAAP financial
measures presented below facilitates an enhanced understanding of our current operating performance and
provides more meaningful period to period comparisons.
•Transaction-Related
(Income) Expenses
— Transaction-related
expenses typically consist of acquisition, integration, and divestiture related costs, as well as the costs
incurred in the VMware Spin-off, and are expensed as incurred. These expenses primarily represent costs for
legal, banking, consulting, and advisory services. During Fiscal 2022, this category includes
$1.5 billion in debt extinguishment fees primarily associated with the early retirement of certain
senior notes. See Note 8 of the Notes to the Consolidated Financial Statements included in this report for
additional information on our debt activity. From time to time, this category also may include
transaction-related income related to divestitures of businesses or asset sales. During Fiscal 2022, we
recognized a pre-tax gain of $4.0 billion on the sale of Boomi and during Fiscal 2021, we recognized a
pre-tax gain of $338 million on the sale of RSA Security. We exclude these items for purposes of
calculating the non-GAAP financial measures presented below to facilitate an enhanced understanding of our
current operating performance and provide more meaningful period to period comparisons.
•Stock-based
Compensation Expense
—
Stock-based compensation expense consists of equity awards granted based on the estimated fair value of
those awards at grant date. To estimate the fair value of performance-based awards containing a market
condition, we use the Monte Carlo valuation model. For other share-based awards, the fair value is generally
based on the closing price of the Class C Common Stock as reported on the NYSE on the date of grant.
Although stock-based compensation is an important aspect of the compensation of our employees and
executives, the fair value of the stock-based awards may bear little resemblance to the actual value
realized upon the vesting or future exercise of the related stock-based awards. We believe that excluding
stock-based compensation expense for purposes of calculating the non-GAAP financial measures presented below
facilitates an enhanced understanding of our current operating performance and provides more meaningful
period to period comparisons.
•Other
Corporate Expenses
—
Other corporate expenses consist of impairment charges, incentive charges related to equity investments,
severance, facility action, payroll taxes associated with stock-based compensation, and other costs. During
Fiscal 2023, other corporate expenses includes $0.9 billion of net expense recognized within interest
and other, net, in connection with an agreement to settle the Class V transaction litigation. See Note 12 of
the Notes to the Consolidated Financial Statements included in this report for information about this
matter. Severance costs are primarily related to severance and benefits for employees terminated pursuant to
cost savings initiatives. During Fiscal 2023, other corporate expenses includes $0.5 billion in costs
primarily associated with our strategic workforce reduction announced subsequent to the close of Fiscal
2023. See Note 20 of the Notes to the Consolidated Financial Statements included in this report for
information about our severance costs. Further, during Fiscal 2023, other corporate expenses includes
$0.2 billion in costs associated with exiting our business in Russia, primarily related to asset
impairments and other exit related costs. Other corporate expenses vary from period to period and are
significantly impacted by the timing and nature of these events. Therefore, although we may incur these
types of expenses in the future, we believe that eliminating these charges for purposes of calculating the
non-GAAP financial measures presented below facilitates an enhanced understanding of our current operating
performance and provides more meaningful period to period comparisons.
•Fair
Value Adjustments on Equity Investments
— Fair value adjustments on equity investments primarily consist of the gain (loss) on strategic
investments, which includes the recurring fair value adjustments of investments in publicly-traded
companies, as well as those in privately-held companies, which are adjusted for observable price changes and
any potential impairments. See Note 4 of the Notes to the Consolidated Financial Statements included in this
report for additional information on our strategic investment activity. Given the volatility in the ongoing
adjustments to the valuation of these strategic investments, we believe that excluding these gains and
losses for purposes of calculating non-GAAP net income presented below facilitates an enhanced understanding
of our current operating performance and provides more meaningful period to period comparisons.
•Aggregate
Adjustment for Income Taxes
— The aggregate adjustment for income taxes is the estimated combined income tax effect for the
adjustments described above, as well as an adjustment for discrete tax items. Due to the variability in
recognition of discrete tax items from period to period, we believe that excluding these benefits or charges
for purposes of calculating non-GAAP net income facilitates an enhanced understanding of our current
operating performance and provides more meaningful period to period comparisons. The tax effects are
determined based on the tax jurisdictions where the above items were incurred. See Note 13 of the Notes to
the Consolidated Financial Statements included in this report for additional information on our income
taxes.
The
following table presents a reconciliation of each non-GAAP financial measure to the most directly comparable
GAAP measure for the
periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
|
February
3, 2023 |
|
%
Change |
|
January
28, 2022 |
|
%
Change |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Product
net revenue |
|
|
|
|
|
|
$
|
79,250
|
|
|
(1)
|
%
|
|
$
|
79,830
|
|
|
18
|
%
|
|
$
|
67,744
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2
|
|
|
Non-GAAP
product net revenue |
|
|
|
|
|
|
$
|
79,250
|
|
|
(1)
|
%
|
|
$
|
79,830
|
|
|
18
|
%
|
|
$
|
67,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
net revenue |
|
|
|
|
|
|
$
|
23,051
|
|
|
8
|
%
|
|
$
|
21,367
|
|
|
13
|
%
|
|
$
|
18,926
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
—
|
|
|
|
|
32
|
|
|
|
|
104
|
|
|
Non-GAAP
services net revenue |
|
|
|
|
|
|
$
|
23,051
|
|
|
8
|
%
|
|
$
|
21,399
|
|
|
12
|
%
|
|
$
|
19,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue |
|
|
|
|
|
|
$
|
102,301
|
|
|
1
|
%
|
|
$
|
101,197
|
|
|
17
|
%
|
|
$
|
86,670
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
—
|
|
|
|
|
32
|
|
|
|
|
106
|
|
|
Non-GAAP
net revenue |
|
|
|
|
|
|
$
|
102,301
|
|
|
1
|
%
|
|
$
|
101,229
|
|
|
17
|
%
|
|
$
|
86,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
gross margin |
|
|
|
|
|
|
$
|
13,221
|
|
|
5
|
%
|
|
$
|
12,606
|
|
|
11
|
%
|
|
$
|
11,313
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangibles |
|
|
|
|
|
|
414
|
|
|
|
|
598
|
|
|
|
|
853
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense |
|
|
|
|
|
|
52
|
|
|
|
|
48
|
|
|
|
|
23
|
|
|
Other
corporate expenses |
|
|
|
|
|
|
32
|
|
|
|
|
6
|
|
|
|
|
17
|
|
|
Non-GAAP
product gross margin |
|
|
|
|
|
|
$
|
13,721
|
|
|
3
|
%
|
|
$
|
13,261
|
|
|
9
|
%
|
|
$
|
12,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
gross margin |
|
|
|
|
|
|
$
|
9,465
|
|
|
2
|
%
|
|
$
|
9,285
|
|
|
5
|
%
|
|
$
|
8,827
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
—
|
|
|
|
|
32
|
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense |
|
|
|
|
|
|
100
|
|
|
|
|
85
|
|
|
|
|
52
|
|
|
Other
corporate expenses |
|
|
|
|
|
|
141
|
|
|
|
|
21
|
|
|
|
|
39
|
|
|
Non-GAAP
services gross margin |
|
|
|
|
|
|
$
|
9,706
|
|
|
3
|
%
|
|
$
|
9,423
|
|
|
4
|
%
|
|
$
|
9,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
|
February
3, 2023 |
|
%
Change |
|
January
28, 2022 |
|
%
Change |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Gross
margin |
|
|
|
|
|
|
$
|
22,686
|
|
|
4
|
%
|
|
$
|
21,891
|
|
|
9
|
%
|
|
$
|
20,140
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangibles |
|
|
|
|
|
|
414
|
|
|
|
|
598
|
|
|
|
|
853
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
2
|
|
|
|
|
35
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense |
|
|
|
|
|
|
152
|
|
|
|
|
133
|
|
|
|
|
75
|
|
|
Other
corporate expenses |
|
|
|
|
|
|
173
|
|
|
|
|
27
|
|
|
|
|
56
|
|
|
Non-GAAP
gross margin |
|
|
|
|
|
|
$
|
23,427
|
|
|
3
|
%
|
|
$
|
22,684
|
|
|
7
|
%
|
|
$
|
21,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
$
|
16,915
|
|
|
(2)
|
%
|
|
$
|
17,232
|
|
|
5
|
%
|
|
$
|
16,455
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangibles |
|
|
|
|
|
|
(556)
|
|
|
|
|
(1,043)
|
|
|
|
|
(1,280)
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
(42)
|
|
|
|
|
(32)
|
|
|
|
|
(35)
|
|
|
Transaction-related
expenses |
|
|
|
|
|
|
(22)
|
|
|
|
|
(273)
|
|
|
|
|
(124)
|
|
|
Stock-based
compensation expense |
|
|
|
|
|
|
(779)
|
|
|
|
|
(675)
|
|
|
|
|
(412)
|
|
|
Other
corporate expenses |
|
|
|
|
|
|
(726)
|
|
|
|
|
(310)
|
|
|
|
|
(320)
|
|
|
Non-GAAP
operating expenses |
|
|
|
|
|
|
$
|
14,790
|
|
|
(1)
|
%
|
|
$
|
14,899
|
|
|
4
|
%
|
|
$
|
14,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income |
|
|
|
|
|
|
$
|
5,771
|
|
|
24
|
%
|
|
$
|
4,659
|
|
|
26
|
%
|
|
$
|
3,685
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangibles |
|
|
|
|
|
|
970
|
|
|
|
|
1,641
|
|
|
|
|
2,133
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
44
|
|
|
|
|
67
|
|
|
|
|
144
|
|
|
Transaction-related
expenses |
|
|
|
|
|
|
22
|
|
|
|
|
273
|
|
|
|
|
124
|
|
|
Stock-based
compensation expense |
|
|
|
|
|
|
931
|
|
|
|
|
808
|
|
|
|
|
487
|
|
|
Other
corporate expenses |
|
|
|
|
|
|
899
|
|
|
|
|
337
|
|
|
|
|
376
|
|
|
Non-GAAP
operating income |
|
|
|
|
|
|
$
|
8,637
|
|
|
11
|
%
|
|
$
|
7,785
|
|
|
12
|
%
|
|
$
|
6,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from continuing operations |
|
|
|
|
|
|
$
|
2,422
|
|
|
(51)
|
%
|
|
$
|
4,942
|
|
|
120
|
%
|
|
$
|
2,245
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangibles |
|
|
|
|
|
|
970
|
|
|
|
|
1,641
|
|
|
|
|
2,133
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
44
|
|
|
|
|
67
|
|
|
|
|
144
|
|
|
Transaction-related
(income) expenses |
|
|
|
|
|
|
(16)
|
|
|
|
|
(2,143)
|
|
|
|
|
(332)
|
|
|
Stock-based
compensation expense |
|
|
|
|
|
|
931
|
|
|
|
|
808
|
|
|
|
|
487
|
|
|
Other
corporate expenses |
|
|
|
|
|
|
1,812
|
|
|
|
|
337
|
|
|
|
|
268
|
|
|
Fair
value adjustments on equity investments |
|
|
|
|
|
|
206
|
|
|
|
|
(572)
|
|
|
|
|
(427)
|
|
|
Aggregate
adjustment for income taxes |
|
|
|
|
|
|
(642)
|
|
|
|
|
(156)
|
|
|
|
|
(772)
|
|
|
Non-GAAP
net income |
|
|
|
|
|
|
$
|
5,727
|
|
|
16
|
%
|
|
$
|
4,924
|
|
|
31
|
%
|
|
$
|
3,746
|
|
In
addition to the above measures, we also use EBITDA and adjusted EBITDA to provide additional information for
evaluation of our operating performance. Adjusted EBITDA excludes purchase accounting adjustments related to
the EMC merger transaction and the going-private transaction, acquisition, integration, and divestiture
related costs, impairment charges, and severance, facility action, and other costs, and stock-based
compensation expense. We believe that, due to the non-operational nature of the purchase accounting entries,
it is appropriate to exclude these adjustments.
As
is the case with the non-GAAP measures presented above, users should consider the limitations of using
EBITDA and adjusted EBITDA, including the fact that those measures do not provide a complete measure of our
operating performance. EBITDA and adjusted EBITDA do not purport to be alternatives to net income from
continuing operations as measures of operating performance or to cash flows from operating activities as a
measure of liquidity. In particular, EBITDA and adjusted EBITDA are not intended to be a measure of free
cash flow available for management’s discretionary use, as these measures do not consider certain cash
requirements, such as working capital needs, capital expenditures, contractual commitments, interest
payments, tax payments, and other debt service requirements.
The
following table presents a reconciliation of EBITDA and adjusted EBITDA to net income from continuing
operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
February
3, 2023 |
|
%
Change |
|
January
28, 2022 |
|
%
Change |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Net
income from continuing operations |
|
|
|
|
|
|
$
|
2,422
|
|
|
(51)
|
%
|
|
$
|
4,942
|
|
|
120
|
%
|
|
$
|
2,245
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other, net (a) |
|
|
|
|
|
|
2,546
|
|
|
|
|
(1,264)
|
|
|
|
|
1,339
|
|
|
Income
tax expense (benefit) |
|
|
|
|
|
|
803
|
|
|
|
|
981
|
|
|
|
|
101
|
|
|
Depreciation
and amortization |
|
|
|
|
|
|
3,156
|
|
|
|
|
3,547
|
|
|
|
|
3,867
|
|
|
EBITDA
|
|
|
|
|
|
|
$
|
8,927
|
|
|
9
|
%
|
|
$
|
8,206
|
|
|
9
|
%
|
|
$
|
7,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
|
|
|
|
$
|
8,927
|
|
|
9
|
%
|
|
$
|
8,206
|
|
|
9
|
%
|
|
$
|
7,552
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense |
|
|
|
|
|
|
931
|
|
|
|
|
808
|
|
|
|
|
487
|
|
|
Impact
of purchase accounting |
|
|
|
|
|
|
—
|
|
|
|
|
36
|
|
|
|
|
106
|
|
|
Transaction-related
expenses |
|
|
|
|
|
|
22
|
|
|
|
|
273
|
|
|
|
|
124
|
|
|
Other
corporate expenses |
|
|
|
|
|
|
899
|
|
|
|
|
337
|
|
|
|
|
376
|
|
|
Adjusted
EBITDA |
|
|
|
|
|
|
$
|
10,779
|
|
|
12
|
%
|
|
$
|
9,660
|
|
|
12
|
%
|
|
$
|
8,645
|
|
____________________
(a)See
“Results of Operations — Interest and Other, Net” for more information on the components
of interest and other, net.
RESULTS
OF OPERATIONS
Consolidated
Results
The
following table summarizes our consolidated results for the periods indicated. Unless otherwise indicated,
all changes identified for the current period results represent comparisons to results for the prior
corresponding fiscal period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
|
February
3, 2023 |
|
|
|
January
28, 2022 |
|
|
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
%
of Net Revenue |
|
% Change
|
|
Dollars
|
|
%
of Net Revenue |
|
% Change
|
|
Dollars
|
|
%
of Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Net
revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
|
|
|
|
|
|
|
|
$
|
79,250
|
|
|
77.5
|
%
|
|
(1)
|
%
|
|
$
|
79,830
|
|
|
78.9
|
%
|
|
18
|
%
|
|
$
|
67,744
|
|
|
78.2
|
%
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
23,051
|
|
|
22.5
|
%
|
|
8
|
%
|
|
21,367
|
|
|
21.1
|
%
|
|
13
|
%
|
|
18,926
|
|
|
21.8
|
%
|
|
Total
net revenue |
|
|
|
|
|
|
|
|
|
|
$
|
102,301
|
|
|
100.0
|
%
|
|
1
|
%
|
|
$
|
101,197
|
|
|
100.0
|
%
|
|
17
|
%
|
|
$
|
86,670
|
|
|
100.0
|
%
|
|
Gross
margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
(a) |
|
|
|
|
|
|
|
|
|
|
$
|
13,221
|
|
|
16.7
|
%
|
|
5
|
%
|
|
$
|
12,606
|
|
|
15.8
|
%
|
|
11
|
%
|
|
$
|
11,313
|
|
|
16.7
|
%
|
|
Services
(b) |
|
|
|
|
|
|
|
|
|
|
9,465
|
|
|
41.1
|
%
|
|
2
|
%
|
|
9,285
|
|
|
43.5
|
%
|
|
5
|
%
|
|
8,827
|
|
|
46.6
|
%
|
|
Total
gross margin |
|
|
|
|
|
|
|
|
|
|
$
|
22,686
|
|
|
22.2
|
%
|
|
4
|
%
|
|
$
|
21,891
|
|
|
21.6
|
%
|
|
9
|
%
|
|
$
|
20,140
|
|
|
23.2
|
%
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
|
$
|
16,915
|
|
|
16.6
|
%
|
|
(2)
|
%
|
|
$
|
17,232
|
|
|
17.0
|
%
|
|
5
|
%
|
|
$
|
16,455
|
|
|
18.9
|
%
|
|
Operating
income |
|
|
|
|
|
|
|
|
|
|
$
|
5,771
|
|
|
5.6
|
%
|
|
24
|
%
|
|
$
|
4,659
|
|
|
4.6
|
%
|
|
26
|
%
|
|
$
|
3,685
|
|
|
4.3
|
%
|
|
Net
income from continuing operations |
|
|
|
|
|
|
|
|
|
|
$
|
2,422
|
|
|
2.4
|
%
|
|
(51)
|
%
|
|
$
|
4,942
|
|
|
4.9
|
%
|
|
120
|
%
|
|
$
|
2,245
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-GAAP
Financial Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
February
3, 2023 |
|
|
|
January
28, 2022 |
|
|
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
%
of Non-GAAP Net Revenue |
|
% Change
|
|
Dollars
|
|
%
of Non-GAAP Net Revenue |
|
% Change
|
|
Dollars
|
|
%
of Non-GAAP Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Non-GAAP
net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
|
|
|
|
|
|
|
|
$
|
79,250
|
|
|
77.5
|
%
|
|
(1)
|
%
|
|
$
|
79,830
|
|
|
78.9
|
%
|
|
18
|
%
|
|
$
|
67,746
|
|
|
78.1
|
%
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
23,051
|
|
|
22.5
|
%
|
|
8
|
%
|
|
21,399
|
|
|
21.1
|
%
|
|
12
|
%
|
|
19,030
|
|
|
21.9
|
%
|
|
Total
non-GAAP net revenue |
|
|
|
|
|
|
|
|
|
|
$
|
102,301
|
|
|
100.0
|
%
|
|
1
|
%
|
|
$
|
101,229
|
|
|
100.0
|
%
|
|
17
|
%
|
|
$
|
86,776
|
|
|
100.0
|
%
|
|
Non-GAAP
gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
(a) |
|
|
|
|
|
|
|
|
|
|
$
|
13,721
|
|
|
17.3
|
%
|
|
3
|
%
|
|
$
|
13,261
|
|
|
16.6
|
%
|
|
9
|
%
|
|
$
|
12,211
|
|
|
18.0
|
%
|
|
Services
(b) |
|
|
|
|
|
|
|
|
|
|
9,706
|
|
|
42.1
|
%
|
|
3
|
%
|
|
9,423
|
|
|
44.0
|
%
|
|
4
|
%
|
|
9,022
|
|
|
47.4
|
%
|
|
Total
non-GAAP gross margin |
|
|
|
|
|
|
|
|
|
|
$
|
23,427
|
|
|
22.9
|
%
|
|
3
|
%
|
|
$
|
22,684
|
|
|
22.4
|
%
|
|
7
|
%
|
|
$
|
21,233
|
|
|
24.5
|
%
|
|
Non-GAAP
operating expenses |
|
|
|
|
|
|
|
|
|
|
$
|
14,790
|
|
|
14.5
|
%
|
|
(1)
|
%
|
|
$
|
14,899
|
|
|
14.7
|
%
|
|
4
|
%
|
|
$
|
14,284
|
|
|
16.5
|
%
|
|
Non-GAAP
operating income |
|
|
|
|
|
|
|
|
|
|
$
|
8,637
|
|
|
8.4
|
%
|
|
11
|
%
|
|
$
|
7,785
|
|
|
7.7
|
%
|
|
12
|
%
|
|
$
|
6,949
|
|
|
8.0
|
%
|
|
Non-GAAP
net income |
|
|
|
|
|
|
|
|
|
|
$
|
5,727
|
|
|
5.6
|
%
|
|
16
|
%
|
|
$
|
4,924
|
|
|
4.9
|
%
|
|
31
|
%
|
|
$
|
3,746
|
|
|
4.3
|
%
|
|
EBITDA
|
|
|
|
|
|
|
|
|
|
|
$
|
8,927
|
|
|
8.7
|
%
|
|
9
|
%
|
|
$
|
8,206
|
|
|
8.1
|
%
|
|
9
|
%
|
|
$
|
7,552
|
|
|
8.7
|
%
|
|
Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
|
$
|
10,779
|
|
|
10.5
|
%
|
|
12
|
%
|
|
$
|
9,660
|
|
|
9.5
|
%
|
|
12
|
%
|
|
$
|
8,645
|
|
|
10.0
|
%
|
____________________
(a) Product
gross margin and non-GAAP product gross margin percentages are calculated as a percentage of product net
revenue and non-GAAP product net revenue, respectively.
(b) Services
gross margin and non-GAAP services gross margin percentages are calculated as a percentage of services net
revenue and non-GAAP services net revenue, respectively.
Non-GAAP
product net revenue, non-GAAP services net revenue, non-GAAP net revenue, non-GAAP product gross margin,
non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating
income, non-GAAP net income, EBITDA, and adjusted EBITDA are not measurements of financial performance
prepared in accordance with GAAP. Non-GAAP financial measures as a percentage of revenue are calculated
based on non-GAAP net revenue. See “Non‑GAAP Financial Measures” for additional
information about these non-GAAP financial measures, including our reasons for including these measures,
material limitations with respect to the usefulness of the measures, and a reconciliation of each non-GAAP
financial measure to the most directly comparable GAAP financial measure.
Overview
During
Fiscal 2023, our net revenue increased 1%, driven by an increase in net revenue for ISG which was mostly
offset by a decline in net revenue for CSG. ISG net revenue increased primarily as a result of continued net
revenue growth within both our servers and networking and storage offerings. CSG net revenue decreased as a
result of a decrease in units sold due to an overall decline in the demand environment.
During
Fiscal 2023, our operating income increased 24% to $5.8 billion, primarily driven by growth in ISG operating
income and the favorable impact of a decrease in amortization of intangible assets. Growth in ISG operating
income for Fiscal 2023 was driven by both our server and networking and storage offerings. The increase in
operating income was partially offset by a decline in CSG operating income as well as the unfavorable impact
of an increase in other corporate expenses. CSG operating income declined during the period principally
driven by our consumer offerings. During Fiscal 2023, our non-GAAP operating income increased 11% to $8.6
billion due to the same ISG and CSG dynamics discussed above.
For
Fiscal 2023, operating income as a percentage of net revenue increased 100 basis points to 5.6% principally
driven by improvement in gross margin as percentage of net revenue coupled with a decrease in operating
expenses as a percentage of net revenue. Gross margin as a percentage of net revenue increased primarily as
a result of a shift in mix towards ISG. The decline in operating expense as a percentage of net revenue was
driven by disciplined cost management and the favorable impact of a decrease in the amortization of
intangible assets, partially offset by the unfavorable impact of an increase in other corporate expenses.
Non-GAAP operating income as a percentage of net revenue increased 70 basis points to 8.4% during Fiscal
2023, driven by the same gross margin and disciplined cost management dynamics discussed above.
Cash
provided by operating activities was $3.6 billion and $10.3 billion during Fiscal 2023 and Fiscal 2022,
respectively. During Fiscal 2022, $3.2 billion of the $10.3 billion total represented cash provided by
operating activities attributable to VMware, Inc. Cash provided by operating activities during Fiscal 2023
declined primarily as a result of unfavorable working capital dynamics as compared to Fiscal 2022. Working
capital was primarily impacted by a shift in mix of the business, the timing of purchases and payments to
vendors during a declining demand environment, and linearity of sales during the fourth quarter of Fiscal
2023. See “Liquidity, Cash Requirements, and Market Conditions” for further information on our
cash flow metrics.
We
continue to see opportunities to create value and grow in response to long-term demand for our IT solutions
driven by a technology-enabled world. We have demonstrated our ability to adjust to changing market
conditions with complementary solutions across both segments of our business, an agile workforce, and the
strength of our global supply chain. As we continue to innovate and modernize our core offerings, we believe
that Dell Technologies is well-positioned for long-term profitable growth.
Net
Revenue
During
Fiscal 2023, our net revenue increased 1%, primarily driven by growth within ISG net revenue that was mostly
offset by a decline in net revenue for CSG. See “Business Unit Results” for further
information.
•Product
Net Revenue
— Product net revenue includes revenue from the sale of hardware products and software licenses.
During Fiscal 2023, our product net revenue decreased 1%, primarily due to a decline in CSG product net
revenue, which was partially offset by growth in ISG product net revenue. CSG product net revenue decreased
primarily as a result of a decline in consumer product net revenue and, to a lesser extent, commercial
product net revenue. These declines were both driven by a decrease in units sold, partially offset by an
increase in average selling prices. ISG product net revenue growth was driven by an increase in product net
revenue from both our server and networking and storage offerings.
•Services
Net Revenue
—
Services net revenue includes revenue from our services offerings and support services related to hardware
products and software licenses. During Fiscal 2023, services net revenue increased 8%, driven principally by
strength in CSG hardware support and maintenance and third-party software support and maintenance, primarily
associated with commercial offerings sold in prior periods. A substantial portion of services net revenue is
derived from offerings that have been deferred over a period of time, and, as a result, reported services
net revenue growth rates will be different than reported product net revenue growth rates.
From
a geographical perspective, net revenue increased in the Americas and EMEA regions and decreased in the APJ
region during Fiscal 2023.
Gross
Margin
During
Fiscal 2023, gross margin and non-GAAP gross margin increased 4% to $22.7 billion and 3% to $23.4 billion,
respectively. The increases were driven by growth in ISG gross margin which was partially offset by a
decline in CSG gross margin.
During
Fiscal 2023, our gross margin and non-GAAP gross margin percentages increased 60 basis points to 22.2% and
50 basis points to 22.9%, respectively, primarily due to a shift in mix towards our ISG offerings.
•Product
Gross Margin —
During Fiscal 2023, product gross margin and non-GAAP product gross margin increased 5% to $13.2 billion and
3% to $13.7 billion, respectively. These increases were driven primarily by growth in ISG product gross
margin due to growth in product net revenue for both our server and networking and storage offerings. The
increases in ISG product gross margin were partially offset by declines in CSG product gross margin
primarily due to a decrease in product net revenue for our consumer offerings and, to a lesser extent, a
decrease in product net revenue for our commercial offerings.
During
Fiscal 2023, product gross margin and non-GAAP product gross margin percentages increased 90 basis points to
16.7% and 70 basis points to 17.3%, respectively, primarily attributable to a shift in mix towards our ISG
offerings.
•Services
Gross Margin —
During Fiscal 2023, services gross margin and non-GAAP services gross margin increased 2% to $9.5 billion
and 3% to $9.7 billion, respectively. The increases were primarily driven by growth in CSG services gross
margin, which was partially offset by a decline in other businesses services gross margin. CSG services
gross margin increased as a result of growth within hardware support and maintenance, primarily associated
with commercial offerings sold in prior periods, while other businesses services gross margin declined due
to the impact of the divestiture of Boomi in Fiscal 2022.
During
Fiscal 2023, services gross margin percentage decreased 240 basis points to 41.1%. The decrease was driven
by a decline in services gross margin percentage for ISG, due to a shift in mix of services delivered,
coupled with a shift in mix towards CSG services net revenue and the impact of the Boomi divestiture during
Fiscal 2022. Further, the unfavorable impact of an increase in other corporate expenses contributed to the
decline. Non-GAAP services gross margin percentage decreased 190 basis points to 42.1% and was driven by the
same ISG, CSG, and Boomi dynamics discussed above.
Vendor
Programs
Our
gross margin is affected by our ability to achieve competitive pricing with our vendors and contract
manufacturers, including through our negotiation of a variety of vendor rebate programs to achieve lower net
costs for the various components we include in our products. Under these programs, vendors provide us with
rebates or other discounts from the list prices for the components, which are generally elements of their
pricing strategy. We account for vendor rebates and other discounts as a reduction in cost of net revenue.
We manage our costs on a total net cost basis, which includes supplier list prices reduced by vendor rebates
and other discounts.
The
terms and conditions of our vendor rebate programs are largely based on product volumes and are generally
negotiated either at the beginning of the annual or quarterly period, depending on the program. The timing
and amount of vendor rebates and other discounts we receive under the programs may vary from period to
period, reflecting changes in the competitive environment. We monitor our component costs and seek to
address the effects of any changes to terms that might arise under our vendor rebate programs. Our gross
margins for Fiscal 2023 and for Fiscal 2022 were not materially affected by any changes to the terms of our
vendor rebate programs, as the amounts we received under these programs were generally stable relative to
our total net cost.
We
are not aware of any significant changes to our vendor rebate programs that will materially impact our
results in the near term. While we anticipate that the impact of industry-wide price increases of certain
processors will impact our cost of net revenue beginning in Fiscal 2024, we are also experiencing cost
deflation on component parts as a result of overall demand softness. We will continue to take pricing
actions to balance profitability and growth while actively addressing our customers’ demands.
Operating
Expenses
The
following table presents information regarding our operating expenses for the periods indicated:
|
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|
|
|
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|
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
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|
Fiscal
Year Ended |
|
|
|
|
|
|
|
February
3, 2023 |
|
|
|
January
28, 2022 |
|
|
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
%
of Net Revenue |
|
% Change
|
|
Dollars
|
|
%
of Net Revenue |
|
% Change
|
|
Dollars
|
|
%
of Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative |
|
|
|
|
|
|
|
|
|
|
$
|
14,136
|
|
|
13.9
|
%
|
|
(4)
|
%
|
|
$
|
14,655
|
|
|
14.5
|
%
|
|
5
|
%
|
|
$
|
14,000
|
|
|
16.1
|
%
|
|
Research
and development |
|
|
|
|
|
|
|
|
|
|
2,779
|
|
|
2.7
|
%
|
|
8
|
%
|
|
2,577
|
|
|
2.5
|
%
|
|
5
|
%
|
|
2,455
|
|
|
2.8
|
%
|
|
Total
operating expenses |
|
|
|
|
|
|
|
|
|
|
$
|
16,915
|
|
|
16.6
|
%
|
|
(2)
|
%
|
|
$
|
17,232
|
|
|
17.0
|
%
|
|
5
|
%
|
|
$
|
16,455
|
|
|
18.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
February
3, 2023 |
|
|
|
January
28, 2022 |
|
|
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
%
of Net Revenue |
|
% Change
|
|
Dollars
|
|
%
of Net Revenue |
|
% Change
|
|
Dollars
|
|
%
of Non-GAAP Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Non-GAAP
operating expenses |
|
|
|
|
|
|
|
|
|
|
$
|
14,790
|
|
|
14.5
|
%
|
|
(1)
|
%
|
|
$
|
14,899
|
|
|
14.7
|
%
|
|
4
|
%
|
|
$
|
14,284
|
|
|
16.5
|
%
|
During
Fiscal 2023, total operating expenses decreased 2% driven by a decrease in selling, general, and
administrative expenses.
•Selling,
General, and Administrative —
Selling, general, and administrative (“SG&A”) expenses decreased 4% during Fiscal 2023,
primarily due to decreases in amortization of intangible assets and outside services expenses which were
partially offset by an increase in employee compensation and benefits. The decline in outside services
expense was primarily attributable to expenses incurred in Fiscal 2022, principally related to the VMware
Spin-off, that did not reoccur in Fiscal 2023. Employee compensation and benefits increased primarily as a
result of costs incurred in connection with our strategic workforce reduction.
•Research
and Development
— Research
and development (“R&D”) expenses are primarily composed of personnel-related expenses
incurred in connection with product development. R&D expenses increased 8% during Fiscal 2023 driven by
an increase in employee compensation and benefits expense.
As
a percentage of net revenue, R&D expenses for Fiscal 2023 and Fiscal 2022 were 2.7% and 2.5%,
respectively. We intend to continue supporting R&D initiatives to innovate and introduce new and
enhanced solutions into the market.
During
Fiscal 2023, non-GAAP operating expenses decreased 1% principally due to continued disciplined cost
management.
We
continue to make selective investments designed to enable growth, marketing, and R&D, while balancing
our efforts to drive cost efficiencies in the business. We also expect to continue making investments in
support of our own digital transformation to modernize our IT operations.
Operating
Income
During
Fiscal 2023, our operating income increased 24% to $5.8 billion, primarily driven by growth in ISG operating
income and the favorable impact of a decrease in amortization of intangible assets. Growth in ISG operating
income for Fiscal 2023 was driven by both our server and networking and storage offerings. The increase in
operating income was partially offset by a decline in CSG operating income coupled with the unfavorable
impact of an increase in other corporate expenses. CSG operating income declined during the period
principally driven by our consumer offerings. During Fiscal 2023, our non-GAAP operating income increased
11% to $8.6 billion driven by the same ISG and CSG dynamics discussed above.
For
Fiscal 2023, operating income as a percentage of net revenue increased 100 basis points to 5.6% principally
driven by improvement in gross margin as percentage of net revenue coupled with a decrease in operating
expenses as a percentage of net revenue. Gross margin as a percentage of net revenue increased primarily as
a result of a shift in mix towards ISG. The decline in operating expense as a percentage of net revenue was
driven by disciplined cost management and the favorable impact of a decrease in both the amortization of
intangible assets, partially offset by the unfavorable impact of an increase in other corporate expenses.
Non-GAAP operating income as a percentage of net revenue increased 70 basis points to 8.4% during Fiscal
2023, driven by the same gross margin and disciplined cost management dynamics discussed above.
Interest
and Other, Net
The
following table presents information
regarding
interest and other, net for the periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Interest
and other, net: |
|
|
|
|
|
|
|
|
|
|
Investment
income, primarily interest |
|
|
|
|
$
|
100
|
|
|
$
|
42
|
|
|
$
|
47
|
|
|
Gain
(loss) on investments, net |
|
|
|
|
(206)
|
|
|
569
|
|
|
425
|
|
|
Interest
expense |
|
|
|
|
(1,222)
|
|
|
(1,542)
|
|
|
(2,052)
|
|
|
Foreign
exchange |
|
|
|
|
(265)
|
|
|
(221)
|
|
|
(160)
|
|
|
Gain
on disposition of businesses and assets |
|
|
|
|
—
|
|
|
3,968
|
|
|
458
|
|
|
Debt
extinguishment fees |
|
|
|
|
—
|
|
|
(1,572)
|
|
|
(158)
|
|
|
Legal
settlement, net |
|
|
|
|
(894)
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
|
|
(59)
|
|
|
20
|
|
|
101
|
|
|
Total
interest and other, net |
|
|
|
|
$
|
(2,546)
|
|
|
$
|
1,264
|
|
|
$
|
(1,339)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
During
Fiscal 2023, the change in interest and other, net was unfavorable by $3.8 billion. The unfavorable change
was attributable to the pre-tax gain of $4.0 billion on the sale of Boomi recognized during Fiscal
2022, $0.9 billion of net expense recognized in Fiscal 2023 in connection with an agreement to settle
the Class V transaction litigation, and the impact of fair value adjustments on our non-marketable strategic
investments portfolio. These factors were partially offset by a decrease in debt extinguishment fees, as we
incurred $1.6 billion in Fiscal 2022 primarily associated with the early retirement of certain senior notes,
and a reduction in interest expense.
Income
and Other Taxes
The
following table presents information regarding our income and other taxes for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Income
before income taxes |
|
|
|
|
|
|
|
$
|
3,225
|
|
|
$
|
5,923
|
|
|
$
|
2,346
|
|
|
Income
tax expense |
|
|
|
|
|
|
|
$
|
803
|
|
|
$
|
981
|
|
|
$
|
101
|
|
|
Effective
income tax rate |
|
|
|
|
|
|
|
24.9
|
%
|
|
16.6
|
%
|
|
4.3
|
%
|
For
Fiscal 2023 and Fiscal 2022, our effective income tax rate was 24.9% and 16.6%, respectively, with the
change being primarily driven by discrete items in those years. Our effective tax rate for the Fiscal 2023
includes the impact of a $0.9 billion expense recognized in connection with an agreement to settle the
Class V transaction litigation. In comparison, our effective tax rate for Fiscal 2022 includes tax expense
of $1.0 billion on a pre-tax gain of $4.0 billion related to the divestiture of Boomi during the
period, as well as tax benefits of $367 million on $1.6 billion of debt extinguishment fees and
$244 million related to the restructuring of certain legal entities.
Other
changes to our effective income tax rates for Fiscal 2023 as compared to Fiscal 2022 were attributable to
the tax impact of foreign operations, which included the impacts of a higher jurisdictional mix of income in
lower tax jurisdictions and higher tax benefits from foreign-derived intangible income offset by the impact
of the capitalization of research and development costs under the Tax Cuts and Jobs Act.
Under
the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, research and development costs incurred
for tax years beginning after December 31, 2021 must be capitalized and amortized ratably over five or 15
years for tax purposes, depending on where the research activities were conducted.
Our
effective income tax rate can fluctuate depending on the geographic distribution of our worldwide earnings,
as our foreign earnings are generally taxed at lower rates than in the United States. The differences
between our effective income tax rates and the U.S. federal statutory rate of 21% principally result from
the geographical distribution of income, differences between the book and tax treatment of certain items,
and the tax items discussed above. In certain jurisdictions, our tax rate is significantly less than the
applicable statutory rate as a result of tax holidays. The majority of our foreign income that is subject to
these tax holidays is attributable to Singapore and China. A significant portion of these income tax
benefits relates to a tax holiday that will be effective until January 31, 2029. Our other tax holidays will
expire in whole or in part during Fiscal 2030 through Fiscal 2031. Many of these tax holidays and reduced
tax rates may be extended when certain conditions are met or may be terminated early if certain conditions
are not met or as a result of changes in tax legislation. As of February 3, 2023, we were not aware of
any matters of noncompliance or enacted tax legislative changes affecting these tax holidays.
For
further discussion regarding tax matters, including the status of income tax audits, see Note 13 of the
Notes to the Consolidated Financial Statements included in this report.
See
“Introduction – Business Trends and Challenges – Inflation Reduction Act” for a
discussion of recent tax legislation.
Net
Income from Continuing Operations
Net
income from continuing operations was $2.4 billion and $4.9 billion for Fiscal 2023 and Fiscal 2022,
respectively. The decrease was principally attributable to an unfavorable change in interest and other, net,
partially offset by an increase in operating income.
Non-GAAP
net income was $5.7 billion and $4.9 billion for Fiscal 2023 and Fiscal 2022, respectively. The increase was
primarily attributable to an increase in non-GAAP operating income and a decrease in interest expense,
partially offset by an increase in tax expense.
Business
Unit Results
Our
reportable segments are based on the ISG and CSG business units. A description of our business units is
provided under “Introduction.” See Note 19 of the Notes to the Consolidated Financial Statements
included in this report for a reconciliation of net revenue and operating income by reportable segment to
consolidated net revenue and consolidated operating income (loss), respectively.
Infrastructure
Solutions Group
The
following table presents net revenue and operating income attributable to ISG for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
|
February
3, 2023 |
|
%
Change |
|
January
28, 2022 |
|
%
Change |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Net
revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servers
and networking |
|
|
|
|
|
|
$
|
20,398
|
|
14
|
%
|
|
$
|
17,901
|
|
8
|
%
|
|
$
|
16,592
|
|
Storage
|
|
|
|
|
|
|
17,958
|
|
9
|
%
|
|
16,465
|
|
—
|
%
|
|
16,410
|
|
Total
ISG net revenue |
|
|
|
|
|
|
$
|
38,356
|
|
12
|
%
|
|
$
|
34,366
|
|
4
|
%
|
|
$
|
33,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISG
operating income |
|
|
|
|
|
|
$
|
5,045
|
|
35
|
%
|
|
$
|
3,736
|
|
—
|
%
|
|
$
|
3,753
|
| %
of segment net revenue |
|
|
|
|
|
|
13.2
|
%
|
|
|
|
10.9
|
%
|
|
|
|
11.4
|
%
|
Net
Revenue
—
During
Fiscal 2023, ISG net revenue increased 12%, driven by strength across both server and networking and storage
offerings.
Revenue
from sales of servers and networking increased 14% during Fiscal 2023, primarily driven by an increase in
average selling price of our server offerings, the effect of which was partially offset by a decrease in
units sold. The average selling price for our server offerings increased as a result of richer
configurations and continued pricing discipline in response to the macroeconomic environment.
During
Fiscal 2023, storage revenue increased 9% due to continued strength across the majority of our storage
offerings.
ISG
customers are interested in new and innovative models that address how they consume our solutions. We offer
options that include as-a-Service, subscription, utility, leases, and immediate pay models which are
designed to match customers’ consumption and financing preferences. Our multiyear agreements typically
result in recurring revenue streams over the term of the arrangement. We expect that our flexible
consumption models and as-a-Service offerings through Dell APEX will further strengthen our customer
relationships and provide a foundation for growth in recurring revenue.
From
a geographical perspective, net revenue attributable to ISG increased in the Americas and EMEA and, to a
lesser extent, in APJ during Fiscal 2023.
Operating
Income
—
During
Fiscal 2023, ISG operating income as a percentage of net revenue increased 230 basis points to 13.2%
principally due to a decrease in operating expenses as a percentage of net revenue that resulted from strong
revenue growth coupled with disciplined cost management.
Client
Solutions Group
The
following table presents net revenue and operating income attributable to CSG for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
February
3, 2023 |
|
%
Change |
|
January
28, 2022 |
|
%
Change |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except percentages) |
|
Net
revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
$
|
45,556
|
|
—
|
%
|
|
$
|
45,576
|
|
29
|
%
|
|
$
|
35,423
|
|
Consumer
|
|
|
|
|
|
|
12,657
|
|
(20)
|
%
|
|
15,888
|
|
23
|
%
|
|
12,964
|
|
Total
CSG net revenue |
|
|
|
|
|
|
$
|
58,213
|
|
(5)
|
%
|
|
$
|
61,464
|
|
27
|
%
|
|
$
|
48,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSG
operating income |
|
|
|
|
|
|
$
|
3,824
|
|
(12)
|
%
|
|
$
|
4,365
|
|
31
|
%
|
|
$
|
3,333
|
|
%
of segment net revenue |
|
|
|
|
|
|
6.6
|
%
|
|
|
|
7.1
|
%
|
|
|
|
6.9
|
%
|
Net
Revenue
—
During
Fiscal 2023, CSG net revenue decreased 5%, driven by a decline in units sold as deteriorating macroeconomic
conditions led to an overall decline in demand industry-wide. The impact of the decline in units sold was
partially offset by an increase in the average selling prices of our offerings. We continue to take
necessary actions to manage pricing while also balancing competitive pressures, profitability, and
growth.
Consumer
net revenue decreased 20% during Fiscal 2023, primarily due to a decrease in units sold, which was only
partially offset by the effect of an increase in the average selling price of our consumer offerings.
During
Fiscal 2023, commercial net revenue remained flat as the effect of an increase in the average selling price
of our commercial offerings was entirely offset by a decrease in units sold.
Our
average selling prices for our CSG offerings increased during Fiscal 2023 primarily as a result of a shift
in mix towards our commercial offerings coupled with richer configurations and the impact of attached
offerings.
From
a geographical perspective, net revenue attributable to CSG remained flat in the Americas and decreased in
both EMEA and APJ during Fiscal 2023.
Operating
Income
—
During Fiscal 2023, CSG operating income as a percentage of net revenue decreased 50 basis points to 6.6%,
primarily due to an increase in operating expenses as a percentage of net revenue, which increased as a
result of a decline in CSG net revenue that outpaced the impacts of cost management measures.
OTHER
BALANCE SHEET ITEMS
Accounts
Receivable
We
sell products and services directly to customers and through a variety of sales channels, including retail
distribution. Our accounts receivable, net, was $12.5 billion and $12.9 billion as of February 3, 2023
and January 28, 2022, respectively. We maintain an allowance for expected credit losses to cover
receivables that may be deemed uncollectible. The allowance for expected credit losses is an estimate based
on an analysis of historical loss experience, current receivables aging, and management’s assessment
of current conditions and its reasonable and supportable expectation of future conditions, as well as
specific identifiable customer accounts that are deemed at risk. As of February 3, 2023 and
January 28, 2022, the allowance for expected credit losses was $78 million and $90 million,
respectively. Based on our assessment, we believe that we are adequately reserved for expected credit
losses. We are monitoring the impact of current economic conditions and the aging of our accounts receivable
on our expected losses and have not experienced deterioration in delinquency or loss rates. We will continue
to take actions, where necessary, to reduce our exposure to credit losses.
Dell
Financial Services and Financing Receivables
We
offer or arrange various financing options and services for our customers globally, including through
captive financing operations. DFS originates, collects, and services customer receivables primarily related
to the purchase of our product, software, and service solutions. We further strengthen customer
relationships through flexible consumption models, including utility, subscription, and as-a-Service models,
which enable us to offer our customers the option to pay over time to provide them with financial
flexibility to meet their changing technological requirements. We have historically seen an increasing
interest in our various financing options during times of macroeconomic uncertainty. New financing
originations were $9.7 billion, $8.5 billion, and $8.9 billion for Fiscal 2023, Fiscal 2022, and Fiscal
2021, respectively.
Our
leases are generally classified as sales-type leases or operating leases. On commencement of sales-type
leases, the Company recognizes profit up-front, and amounts due from the customer under the lease contract
are recognized as financing receivables. Interest income is recognized as net product revenue over the term
of the lease. Upon origination of operating leases, we record equipment under operating leases, classified
as property, plant, and equipment. Over the contract term of an operating lease, we recognize rental revenue
and depreciation expense, classified as cost of net revenue.
As
of February 3, 2023 and January 28, 2022, our financing receivables, net were $10.9 billion and
$10.6 billion, respectively.
We maintain an allowance to cover expected financing receivable credit losses and evaluate credit loss
expectations based on our total portfolio. For Fiscal 2023, Fiscal 2022, and Fiscal 2021, the principal
charge-off rate for our financing receivables portfolio was 0.5%, 0.6% and 0.7%, respectively. The credit
quality of our financing receivables has improved in recent years as the mix of high-quality commercial
accounts in our portfolio has continued to increase. We continue to monitor broader economic indicators and
their potential impact on future credit loss performance. We have an extensive process to manage our
exposure to customer credit risk, including active management of credit lines and our collection activities.
We also sell selected fixed-term financing receivables without recourse to unrelated third parties on a
periodic basis, primarily to manage certain concentrations of customer credit exposure. Based on our
assessment of the customer financing receivables, we believe that we are adequately reserved.
We
retain a residual interest in equipment leased under our lease programs. As of February 3, 2023 and
January 28, 2022, the residual interest recorded as part of financing receivables was $142 million and
$217 million, respectively. The decline in residual interest was principally attributable to a corresponding
increase in originations of operating leases. The amount of the residual interest is established at the
inception of the lease based upon estimates of the value of the equipment at the end of the lease term using
historical studies, industry data, and future value-at-risk demand valuation methods. On a quarterly basis,
we assess the carrying amount of our recorded residual values for expected losses. Generally, expected
losses as a result of residual value risk on equipment under lease are not considered to be significant
primarily because of the existence of a secondary market with respect to the equipment. Further, the lease
agreement defines applicable return conditions and remedies for non-compliance to ensure that the leased
equipment will be in good operating condition upon return. No expected losses were recorded related to
residual assets during Fiscal 2023 and Fiscal 2022.
As
of February 3, 2023 and January 28, 2022, equipment under operating leases, net was $2.2 billion
and $1.7 billion, respectively. We assess the carrying amount of the equipment under operating leases for
impairment whenever events or circumstances may indicate that an impairment has occurred. No material
impairment losses were recorded related to such equipment during Fiscal 2023, Fiscal 2022, and Fiscal
2021.
DFS
offerings are initially funded through cash on hand at the time of origination, most of which is
subsequently replaced with asset-backed financing. For DFS offerings which qualify as sales-type leases, the
initial funding of financing receivables is reflected as an impact to cash flows from operations, and is
largely subsequently offset by cash proceeds from financing.
For
DFS operating leases, the initial funding is classified as a capital expenditure and reflected as an impact
to cash flows used in investing activities.
See
Note 6 of the Notes to the Consolidated Financial Statements included in this report for additional
information about our financing receivables and the associated allowances, and equipment under operating
leases.
LIQUIDITY,
CASH REQUIREMENTS, AND MARKET CONDITIONS
Liquidity
and Capital Resources
We
rely on operating cash flows, which are impacted by trends in the demand environment, as our primary source
of liquidity for our ongoing business operations. We monitor the efficiency of our balance sheet to ensure
that we have adequate liquidity to support our business and strategic initiatives. In addition to internally
generated cash, we have access to other capital sources to finance our strategic initiatives and fund growth
in our financing operations. Our strategy is to deploy capital from any potential source, whether internally
generated cash or debt, depending on the adequacy and availability of that source of capital and whether it
can be accessed in a cost-effective manner.
We
believe that our current cash and cash equivalents, together with cash that will be provided by future
operations and borrowings expected to be available under our revolving credit facility and commercial paper
program, will be sufficient over at least the next twelve months and for the foreseeable future thereafter
to meet our material cash requirements, including funding of our operations, debt-related payments, capital
expenditures, and other corporate needs. Our cash and cash equivalent balances will be impacted in the
near-term as a result of certain non-recurring cash outflows, including payment of the Class V transaction
litigation settlement.
As
part of our overall capital allocation strategy, we intend to drive growth while maintaining our investment
grade rating and focusing on returning capital to our stockholders through both share repurchase programs
and dividend payments.
The
following table presents our cash and cash equivalents as well as our available borrowings as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
|
Cash
and cash equivalents, and available borrowings: |
|
|
|
|
Cash
and cash equivalents |
$
|
8,607
|
|
|
$
|
9,477
|
|
|
Remaining
available borrowings under 2021 Revolving Credit Facility |
5,999
|
|
|
4,969
|
|
|
Total
cash, cash equivalents, and available borrowings |
$
|
14,606
|
|
|
$
|
14,446
|
|
During
Fiscal 2023, cash and cash equivalents decreased by $0.9 billion, primarily as a result of the return of
capital to our stockholders through share repurchases and dividend payments, and capital expenditures,
partially offset by cash flows from operations and net cash proceeds from the issuance of senior
notes.
As
of February 3, 2023, our 2021 Revolving Credit Facility had a maximum capacity of $6.0 billion.
Available borrowings under this facility are reduced by draws on the facility and outstanding letters of
credit. As of February 3, 2023, there were no borrowings outstanding under the facility and remaining
available borrowings totaled approximately $6.0 billion. The 2021 Revolving Credit Facility also acts as a
backstop to provide liquidity support for our commercial paper program.
During
Fiscal 2023, we established a commercial paper program under which we may issue unsecured notes in a maximum
aggregate face amount of $5.0 billion outstanding at any time, with maturities up to 397 days from the
date of issue. As of February 3, 2023, we had no outstanding borrowings under the program.
We
may regularly use our available borrowings from the 2021 Revolving Credit Facility and issuances under the
commercial paper program on a short-term basis for general corporate purposes. See Note 8 of the Notes to
the Consolidated Financial Statements included in this report for additional information about our
debt.
During
Fiscal 2023, we entered into a factoring arrangement with a third-party financial institution to sell
certain high-quality trade accounts receivable on a non-recourse basis. We may elect to factor trade
accounts receivable from time to time as part of our overall liquidity and working capital management
strategy.
Debt
The
following table presents our outstanding debt as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
Change
|
|
January
28, 2022 |
|
|
|
|
|
|
|
(in
millions) |
|
Core
debt |
|
|
|
|
|
|
Senior
Notes |
$
|
18,300
|
|
|
$
|
2,000
|
|
|
$
|
16,300
|
|
|
Legacy
Notes and Debentures |
952
|
|
|
—
|
|
|
952
|
|
|
|
|
|
|
|
|
DFS
allocated debt |
(1,196)
|
|
|
(63)
|
|
|
(1,133)
|
|
|
Total
core debt |
18,056
|
|
|
1,937
|
|
|
16,119
|
|
|
DFS
related debt |
|
|
|
|
|
|
DFS
debt |
10,290
|
|
|
644
|
|
|
9,646
|
|
|
DFS
allocated debt |
1,196
|
|
|
63
|
|
|
1,133
|
|
|
Total
DFS related debt |
11,486
|
|
|
707
|
|
|
10,779
|
|
|
Other
|
325
|
|
|
(12)
|
|
|
337
|
|
|
Total
debt, principal amount |
29,867
|
|
|
2,632
|
|
|
27,235
|
|
|
Carrying
value adjustments |
(279)
|
|
|
2
|
|
|
(281)
|
|
|
Total
debt, carrying value |
$
|
29,588
|
|
|
$
|
2,634
|
|
|
$
|
26,954
|
|
The
outstanding principal amount of our debt increased $2.6 billion from January 28, 2022 to $29.9 billion
as of February 3, 2023, driven primarily by the issuance of $2.0 billion principal amount of senior
notes and, to a lesser extent, net DFS activity.
We
define core debt as the total principal amount of our debt, less DFS related debt and other debt. Our core
debt was $18.1 billion and $16.1 billion as of February 3, 2023 and January 28, 2022,
respectively. The increase in our core debt during Fiscal 2023 was primarily driven by the issuance of $2.0
billion principal amount of senior notes. We intend to utilize the proceeds of such senior notes to repay
the 5.45% senior notes due June 2023 and to utilize the remaining proceeds for general corporate purposes,
including repayment of other debt. See Note 8 of the Notes to the Consolidated Financial Statements included
in this report for additional information about our debt.
DFS
related debt primarily represents debt from our securitization and structured financing programs. Our risk
of loss under these programs is limited to transferred lease and loan payments and associated equipment, as
the credit holders have no recourse to Dell Technologies.
To
fund expansion of the DFS business, we balance the use of the securitization and structured financing
programs with other sources of liquidity. We approximate the amount of our debt used to fund the DFS
business by applying a 7:1 debt-to-equity ratio to the sum of our financing receivables balance and
equipment under our DFS operating leases, net. The debt-to-equity ratio is based on the underlying credit
quality of the assets. See Note 6 of the Notes to the Consolidated Financial Statements included in this
report for additional information about our DFS debt.
We
believe we will continue to be able to make our debt principal and interest payments, including short-term
maturities, from existing and expected sources of cash, primarily from operating cash flows. Cash used for
debt principal and interest payments may include short-term borrowings under our commercial paper program,
our revolving credit facility, or other borrowings. Under our variable-rate debt, we could experience
variations in our future interest expense from potential fluctuations in applicable reference rates, or from
possible fluctuations in the level of DFS debt required to meet future demand for customer financing.
We
have made steady progress in paying down debt and we will continue to pursue deleveraging over the long-term
as an important component of our overall capital allocation strategy. At our sole discretion, we may
purchase, redeem, prepay, refinance, or otherwise retire any amount of our outstanding indebtedness under
the terms of such indebtedness at any time and from time to time, in open market or negotiated transactions
with the holders of such indebtedness or otherwise, as we consider appropriate in light of market conditions
and other relevant factors.
Cash
Flows
The
following table presents a summary of our Consolidated
Statements of Cash Flows
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
(in
millions) |
|
Net
change in cash from: |
|
|
|
|
|
|
Operating
activities |
$
|
3,565
|
|
|
$
|
10,307
|
|
|
$
|
11,407
|
|
|
Investing
activities |
(3,024)
|
|
|
1,306
|
|
|
(460)
|
|
|
Financing
activities |
(1,625)
|
|
|
(16,609)
|
|
|
(5,950)
|
|
|
Effect
of exchange rate changes on cash, cash equivalents, and restricted cash |
(104)
|
|
|
(106)
|
|
|
36
|
|
|
Change
in cash, cash equivalents, and restricted cash |
$
|
(1,188)
|
|
|
$
|
(5,102)
|
|
|
$
|
5,033
|
|
Cash
flows for both Fiscal 2022 and Fiscal 2021 are inclusive of cash flows attributable to VMware, Inc.
Effective November 1, 2021, as a result of the VMware Spin-off, cash flows ceased to include cash flows
attributable to VMware, Inc. See “Introduction” and Note 1 and Note 3 of the Notes to the
Consolidated Financial Statements included in this report for additional information regarding the VMware
Spin-off.
Operating
Activities —
Cash provided by operating activities was $3.6 billion during Fiscal 2023 compared to $10.3 billion during
Fiscal 2022. Cash provided by operating activities for Fiscal 2022 included $3.2 billion attributable
to VMware, Inc.
The
decline in cash provided by operating activities was primarily attributable to unfavorable working capital
dynamics as compared to Fiscal 2022. Working capital was primarily impacted by a shift in mix of the
business, the timing of purchases and payments to vendors during a declining demand environment, and
linearity of sales during the fourth quarter of Fiscal 2023.
Investing
Activities —
Investing activities primarily consist of cash used to fund capital expenditures for property, plant, and
equipment inclusive of equipment under DFS operating leases and equipment used to support our as-a-Service
offerings (collectively “revenue generating assets”). Additional activities include capitalized
software development costs, acquisitions and divestitures, strategic investments, and the maturities, sales,
and purchases of investments. During Fiscal 2023, cash used in investing activities was $3.0 billion and was
primarily applied to capital expenditures.
Cash
provided by investing activities was $1.3 billion during Fiscal 2022, primarily driven by net cash proceeds
related to the divestiture of Boomi, which was partially offset by cash used for capital
expenditures.
Financing
Activities —
Financing activities primarily consist of the proceeds and repayments of debt and return of capital to our
stockholders. Cash used in financing activities was $1.6 billion during Fiscal 2023 and primarily consisted
of repurchases of common stock, inclusive of payments to settle employee tax withholding on stock-based
compensation, and the payment of quarterly dividends. The effects of these activities were partially offset
by net cash proceeds from debt issuances, primarily related to the issuance of senior notes. See Note 8 of
the Notes to the Consolidated Financial Statements included in this report for additional information
regarding our debt.
Cash
used in financing activities was $16.6 billion during Fiscal 2022 and primarily consisted of debt repayments
and associated debt extinguishment fees, as well as cash transferred to VMware in connection with the VMware
Spin-off. The effect of these activities was partially offset by cash proceeds from the issuance of senior
notes by Dell Technologies and VMware.
DFS
Cash Flow Impacts
—
DFS offerings are initially funded through cash on hand at the time of origination, most of which is
subsequently replaced with asset-backed financing. For DFS offerings that qualify as sales-type leases, the
initial funding of financing receivables is reflected as an impact to cash flows from operations and is
largely subsequently offset by cash proceeds from financing. For DFS operating leases, the initial funding
is classified as a capital expenditure and reflected as cash flows used in investing activities. DFS new
financing originations were $9.7 billion, $8.5 billion, and $8.9 billion during Fiscal 2023, Fiscal 2022,
and Fiscal 2021, respectively. As of February 3, 2023, DFS had $10.9 billion of total net financing
receivables and $2.2 billion of equipment under DFS operating leases, net.
Capital
Commitments
Capital
Expenditures
—
We spent $3.0 billion and $2.8 billion during Fiscal 2023 and Fiscal 2022, respectively, on
property, plant, and equipment and capitalized software development costs. Of total expenditures incurred
during Fiscal 2023 and Fiscal 2022, funding of revenue generating assets totaled $1.5 billion and
$1.3 billion, respectively. Product demand, product mix, the use of contract manufacturers, and ongoing
investments in operating and information technology infrastructure influence the level and prioritization of
our capital expenditures. Aggregate capital expenditures for Fiscal 2024 are currently expected to total
between $2.9 billion and $3.1 billion, of which approximately $1.8 billion are expected to
relate to revenue generating assets.
Repurchases
of Common Stock
Repurchases
of Common Stock
—
Effective as of September 23, 2021, our Board of Directors approved a stock repurchase program with no fixed
expiration date under which we are authorized to repurchase up to $5 billion of shares of our Class C
Common Stock. During Fiscal 2023, we repurchased approximately 62 million shares of Class C Common
Stock under this program for a total purchase price of approximately $2.8 billion.
Dividend
Payments
Dividend
Payments
—
On February 24, 2022, we announced that our Board of Directors adopted a dividend policy providing for our
payment of quarterly cash dividends on our common stock at a rate of $0.33 per share per fiscal quarter
beginning in the first quarter of Fiscal 2023. During Fiscal 2023, the Company paid the following
dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Declaration
Date |
|
Record
Date |
|
Payment
Date |
|
Dividend
per Share |
|
Amount
(in
millions)
|
|
February
24, 2022 |
|
April
20, 2022 |
|
April
29, 2022 |
|
$
|
0.33
|
|
|
$
|
248
|
|
| June
7, 2022 |
|
July
20, 2022 |
|
July
29, 2022 |
|
$
|
0.33
|
|
|
$
|
242
|
|
|
September
6, 2022 |
|
October
19, 2022 |
|
October
28, 2022 |
|
$
|
0.33
|
|
|
$
|
238
|
|
|
December
6, 2022 |
|
January
25, 2023 |
|
February
3, 2023 |
|
$
|
0.33
|
|
|
$
|
236
|
|
On
March 2, 2023, we announced that the Board of Directors approved a 12% increase in the quarterly dividend
rate to a rate of $0.37 per share per fiscal quarter beginning in the first quarter of Fiscal 2024.
Contractual
Cash Obligations
The
following table presents a summary of our contractual cash obligations as of February 3, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
Due by Fiscal Year |
|
Total
|
|
2024
|
|
2025-2026
|
|
2027-2028
|
|
Thereafter
|
|
(in
millions) |
|
Contractual
cash obligations: |
|
|
|
|
|
|
|
|
|
|
Principal
payments on debt: |
|
|
|
|
|
|
|
|
|
|
Core
debt (a) |
$
|
19,252
|
|
|
$
|
1,000
|
|
|
$
|
2,000
|
|
|
$
|
6,750
|
|
|
$
|
9,502
|
|
|
DFS
debt (b) |
10,290
|
|
|
5,400
|
|
|
3,747
|
|
|
1,143
|
|
|
—
|
|
|
Other
|
325
|
|
|
177
|
|
|
140
|
|
|
8
|
|
|
—
|
|
|
Total
principal payments on debt |
29,867
|
|
|
6,577
|
|
|
5,887
|
|
|
7,901
|
|
|
9,502
|
|
|
Interest
|
9,173
|
|
|
1,250
|
|
|
2,014
|
|
|
1,345
|
|
|
4,564
|
|
|
Purchase
obligations |
4,383
|
|
|
3,460
|
|
|
617
|
|
|
298
|
|
|
8
|
|
|
Operating
leases |
966
|
|
|
260
|
|
|
362
|
|
|
206
|
|
|
138
|
|
|
Tax
obligations |
144
|
|
|
36
|
|
|
108
|
|
|
—
|
|
|
—
|
|
|
Contractual
cash obligations |
$
|
44,533
|
|
|
$
|
11,583
|
|
|
$
|
8,988
|
|
|
$
|
9,750
|
|
|
$
|
14,212
|
|
____________________
(a) Contractual
cash obligations associated with core debt exclude DFS allocated debt.
(b)
DFS debt primarily represents debt from our securitization and structured financing programs.
Principal
Payments on Debt — Our
expected principal cash payments on borrowings are exclusive of discounts and premiums. We have outstanding
long-term notes with varying maturities. For additional information about our debt, see Note 6 and Note 8 of
the Notes to the Consolidated Financial Statements included in this report.
Interest —
Of the total cash obligations for interest presented in the table above, the amounts related to our DFS debt
were expected to be $185 million in Fiscal 2024, $89 million in Fiscal 2025-2026, and
$1 million in Fiscal 2027-2028. See Note 6 and Note 8 of the Notes to the Consolidated Financial
Statements included in this report for further discussion of our debt and related interest expense.
Purchase
Obligations — Purchase
obligations are defined as contractual obligations to purchase goods or services that are enforceable and
legally binding on us. These obligations specify all significant terms, including fixed or minimum
quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the
transaction. Purchase obligations do not include contracts that may be canceled without penalty.
We
utilize several suppliers to manufacture sub-assemblies for our products. Our efficient supply chain
management allows us to enter into flexible and mutually beneficial purchase arrangements with our suppliers
in order to minimize inventory risk. Consistent with industry practice, we acquire raw materials or other
goods and services, including product components, by issuing to suppliers authorizations to purchase based
on our projected demand and manufacturing needs. These purchase orders are typically fulfilled within 30
days and are entered into during the ordinary course of business in order to establish best pricing and
continuity of supply for our production. Purchase orders are not included in purchase obligations, as they
typically represent our authorization to purchase rather than binding purchase obligations.
Operating
Leases —
We lease property and equipment, manufacturing facilities, and office space under non-cancelable leases.
Certain of these leases obligate us to pay taxes, maintenance, and repair costs. See Note 7 of the Notes to
the Consolidated Financial Statements included in this report for additional information about our leasing
transactions in which we are the lessee.
Tax
Obligations
—
Tax obligations represent a one-time mandatory deemed repatriation tax on undistributed earnings of foreign
subsidiaries. Excluded from the table above are $1.3 billion in additional liabilities associated with
uncertain tax positions as of February 3, 2023. We are unable to reliably estimate the expected payment
dates for any liabilities for uncertain tax positions. See Note 13 of the Notes to the Consolidated
Financial Statements included in this report for more information on these tax matters.
Market
Conditions
We
regularly monitor economic conditions and associated impacts on the financial markets and our business. We
consistently evaluate the financial health of our supplier base, carefully manage customer credit, diversify
counterparty risk, and monitor the concentration risk of our cash and cash equivalents balances globally. We
routinely monitor our financial exposure to borrowers and counterparties.
We
monitor credit risk associated with our financial counterparties using various market credit risk indicators
such as credit ratings issued by nationally recognized credit rating agencies and changes in market credit
default swap levels. We perform periodic evaluations of our positions with these counterparties and may
limit exposure to any one counterparty in accordance with our policies. We monitor and manage these
activities depending on current and expected market developments.
We
use derivative instruments to hedge certain foreign currency exposures. We use forward contracts and
purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks
inherent in our forecasted transactions denominated in currencies other than the U.S. dollar. In
addition, we primarily use forward contracts and may use purchased options to hedge monetary assets and
liabilities denominated in a foreign currency. See Note 9 of the Notes to the Consolidated Financial
Statements included in this report for additional information about our use of derivative
instruments.
We
are exposed to interest rate risk related to our variable-rate debt portfolio. In the normal course of
business we follow established policies and procedures to manage this risk, including monitoring of our
asset and liability mix and the use of derivative instruments. As a result, we do not anticipate any
material losses from interest rate risk.
Summarized
Guarantor Financial Information
As
discussed in Note 8 of the Notes to the Consolidated Financial Statements included in this report, Dell
International L.L.C. and EMC Corporation (the “Issuers”), both of which are wholly-owned
subsidiaries of Dell Technologies Inc., completed private offerings of multiple series of senior secured
notes issued on June 1, 2016, March 20, 2019, and April 9, 2020 (the “Senior Notes”). In June
2021, the Issuers completed an exchange offer and issued $18.4 billion aggregate principal amount of
registered senior notes under the Securities Act of 1933 in exchange for the same principal amount and
substantially identical terms of the Senior Notes. The aggregate principal amount of unregistered Senior
Notes remaining outstanding following the settlement of the exchange offer was approximately
$0.1 billion. During Fiscal 2022, the tangible and intangible assets of the Issuers and guarantors that
secured obligations under the Senior Notes were released as collateral. As a result, the Senior Notes became
fully unsecured. In addition, all guarantees of the Senior Notes by subsidiaries of Dell Inc. were released.
On
January 24, 2023, the Issuers completed a public offering of unsecured senior notes (together with the
Senior Notes, the “Registered Senior Notes”) in the aggregate principal amount of
$2.0 billion. The unsecured senior notes were sold pursuant to a shelf registration statement.
Guarantees
— The Registered Senior Notes are guaranteed on a joint and several unsecured basis by Dell
Technologies Inc. and its wholly-owned subsidiaries, Denali Intermediate, Inc. and Dell Inc. (collectively,
the “Guarantors”).
Basis
of Preparation of the Summarized Financial Information
— The tables below are summarized financial information provided in conformity with Rule 13-01 of the
SEC’s Regulation S-X. The summarized financial information of the Issuers and Guarantors
(collectively, the “Obligor Group”) is presented on a combined basis, excluding intercompany
balances and transactions between entities in the Obligor Group. The Obligor Group’s amounts due from,
amounts due to, and transactions with Non-Obligor Subsidiaries and VMware, Inc. and its consolidated
subsidiaries (the “Related Party”) have been presented separately. The Obligor Group’s
investment balances in Non-Obligor Subsidiaries have been excluded.
The
following table presents summarized results of operations information for the Obligor Group for the period
indicated:
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
(in
millions) |
|
Net
revenue (a) |
$
|
10,327
|
|
|
Gross
margin (b) |
4,517
|
|
|
Operating
income (c) |
1,203
|
|
| Interest
and other, net (d) |
(3,284)
|
|
|
Loss
before income taxes |
$
|
(2,081)
|
|
|
Net
loss attributable to Obligor Group |
$
|
(1,720)
|
|
____________________
(a)
Includes net revenue from services provided and product sales to Non-Obligor Subsidiaries of $841 million
and $171 million, respectively.
(b)
Includes cost of net revenue from resale of solutions purchased from Non-Obligor Subsidiaries and the
Related Party of $1,034 million and $491 million, respectively. Includes costs of net revenue from shared
services provided by Non-Obligor Subsidiaries of $634 million.
(c)
Includes operating expenses from shared services provided by Non-Obligor Subsidiaries of $22 million.
(d)
Includes interest expense on inter-company loan payables of $1,379 million.
The
following table presents summarized balance sheet information for the Obligor Group as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
|
|
|
|
| ASSETS
|
|
Current
assets |
$
|
2,972
|
|
|
$
|
3,106
|
|
|
Intercompany
receivables |
595
|
|
|
988
|
|
|
Due
from related party, net |
312
|
|
|
59
|
|
|
Short-term
intercompany loan receivables |
227
|
|
|
—
|
|
| Total
current assets |
4,106
|
|
|
4,153
|
|
|
Due
from related party, net |
440
|
|
|
710
|
|
|
Goodwill
and intangible assets |
14,818
|
|
|
15,399
|
|
|
Other
non-current assets |
3,009
|
|
|
2,810
|
|
|
Total
assets |
$
|
22,373
|
|
|
$
|
23,072
|
|
| LIABILITIES
|
|
Current
liabilities |
$
|
6,611
|
|
|
$
|
4,625
|
|
|
|
|
|
|
Due
to related party |
110
|
|
|
192
|
|
| Total
current liabilities |
6,721
|
|
|
4,817
|
|
|
Long-term
debt |
17,996
|
|
|
17,001
|
|
|
Intercompany
loan payables |
38,896
|
|
|
37,509
|
|
|
Other
non-current liabilities |
3,891
|
|
|
3,473
|
|
|
Total
liabilities |
$
|
67,504
|
|
|
$
|
62,800
|
|
Critical
Accounting Estimates
We
prepare our financial statements in conformity with GAAP, which requires certain estimates, assumptions, and
judgments to be made that may affect our Consolidated Statements of Financial Position and Consolidated
Statements of Income. Accounting policies that have a significant impact on our Consolidated Financial
Statements are described in Note 2 of the Notes to the Consolidated Financial Statements included in this
report. The accounting estimates and assumptions discussed in this section are those that we consider to be
the most critical. We consider an accounting policy to be critical if the nature of the estimate or
assumption is subject to a material level of judgment and if changes in those estimates or assumptions are
reasonably likely to materially impact our Consolidated Financial Statements. We have discussed the
development, selection, and disclosure of our critical accounting policies with the Audit Committee of our
Board of Directors.
Revenue
Recognition
— We sell a wide portfolio of products and services offerings to our customers. Our agreements have
varying terms and conditions depending on the goods and services being sold, the rights and obligations
conveyed, and the legal jurisdiction of the arrangement. While most of our agreements have standard terms
and conditions, more complex agreements may contain nonstandard terms and conditions. There are significant
judgements in interpreting agreements to determine the appropriate accounting for nonstandard terms and
conditions.
Our
contracts with customers often include multiple performance obligations for various distinct goods and
services such as hardware, software licenses, support and maintenance agreements, and other service
offerings and solutions. We use significant judgment to assess whether these promises are distinct
performance obligations that should be accounted for separately. In certain hardware solutions, the hardware
is highly interdependent on, and interrelated with, the embedded software. In these offerings, the hardware
and software licenses are accounted for as a single performance obligation.
The
transaction price reflects the amount of consideration to which we expect to be entitled in exchange for
transferring goods or services to the customer. If the consideration promised in a contract includes a
variable amount, we estimate the amount to which we expect to be entitled using either the expected value or
most likely amount method. Estimates are updated each reporting period as the variability is resolved or if
additional information becomes available. Generally, volume discounts, rebates, and sales returns reduce the
transaction price. When we determine the transaction price, we only include amounts that are not subject to
significant future reversal.
When
a contract includes multiple performance obligations, the transaction price is allocated to each performance
obligation in proportion to the standalone selling price (“SSP”) of each performance obligation.
Judgment
is required when determining the SSP of our performance obligations. If the observable price is available,
we utilize that price for the SSP. If the observable price is not available, the SSP must be estimated. We
estimate SSP by considering multiple factors, including, but not limited to, pricing practices, internal
costs, and profit objectives as well as overall market conditions, which include geographic or regional
specific factors, competitive positioning, and competitor actions. Our SSP estimates rely, in part, on
company pricing trends. Market conditions could impact the selling price in the current period which may not
be reflective of trends, and could lead to revenue timing, classification, and segment differences when
compared to similar contracts in other periods. SSP for our performance obligations is periodically
reassessed.
For
transactions that involve a third party, the Company evaluates whether it is acting as the principal or the
agent in the transaction. This determination requires significant judgement and impacts the amount and
timing of revenue recognized. If the Company determines that it controls a good or service before it is
transferred to the customer, the Company is acting as the principal and recognizes revenue at the gross
amount of consideration it is entitled to from the customer. Indicators that the Company controls a good or
service before transferring to a customer include, but are not limited to, the Company being the primary
obligor to the customer, establishing its own pricing, and having inventory and credit risks.
Goodwill
and Indefinite-Lived Intangible Assets Impairment Assessments —
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third fiscal
quarter and whenever events or circumstances may indicate that an impairment has occurred.
To
determine whether goodwill is impaired, we first assess certain qualitative factors. Qualitative factors
that may be assessed include, but are not limited to, macroeconomic conditions, industry and market
considerations, cost factors, overall financial performance, or other relevant company-specific events.
Based on this assessment, if it is determined more likely than not that the fair value of a goodwill
reporting unit is less than its carrying amount, we perform a quantitative analysis of the goodwill
impairment test. Alternatively, we may bypass the qualitative assessment and perform a quantitative
impairment test.
Significant
judgment is exercised in the identification of goodwill reporting units, assignment of assets and
liabilities to goodwill reporting units, assignment of goodwill to reporting units, and determination of the
fair value of each goodwill reporting unit. The fair value of each of our goodwill reporting units is
generally estimated using a combination of public company multiples and discounted cash flow methodologies,
and then compared to the carrying value of each goodwill reporting unit. The discounted cash flow and public
company multiples methodologies require significant judgment, including estimation of future revenues, gross
margins, and operating expenses, which are dependent on internal forecasts, current and anticipated economic
conditions and trends, selection of market multiples through assessment of the reporting unit’s
performance relative to peer competitors, the estimation of the long-term revenue growth rate and discount
rate of our business, and the determination of our weighted average cost of capital. Changes in these
estimates and assumptions could materially affect the fair value of the goodwill reporting unit, potentially
resulting in a non-cash impairment charge.
The
fair value of the indefinite-lived intangible assets is generally estimated using discounted cash flow
methodologies. The discounted cash flow methodologies require significant judgment, including estimation of
future revenue, the estimation of the long-term revenue growth rate of our business, and the determination
of the weighted average cost of capital and royalty rates. Changes in these estimates and assumptions could
materially affect the fair value of the indefinite-lived intangible assets, potentially resulting in a
non-cash impairment charge.
For
more information about our goodwill and intangible assets, see Note 10 of the Notes to the Consolidated
Financial Statements included in this report.
Income
Taxes —
We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgments
are required in determining the consolidated provision for income taxes. We calculate a provision for income
taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized
by identifying the temporary differences arising from the different treatment of items for tax and
accounting purposes. We account for the tax impact of including Global Intangible Low-Taxed Income (GILTI)
in U.S. taxable income as a period cost. We provide related valuation allowances for deferred tax assets,
where appropriate. Significant judgment is required in determining any valuation allowance against deferred
tax assets. In assessing the need for a valuation allowance, we consider all available evidence for each
jurisdiction, including past operating results, estimates of future taxable income, and the feasibility of
ongoing tax planning strategies. In the event we determine that all or part of the net deferred tax assets
are not realizable in the future, we will make an adjustment to the valuation allowance that would be
charged to earnings in the period such determination is made.
Significant
judgment is also required in evaluating our uncertain tax positions. Although we believe our tax return
positions are sustainable, we recognize tax benefits from uncertain tax positions in the financial
statements only when it is more likely than not that the positions will be sustained upon examination,
including resolution of any related appeals or litigation processes, based on the technical merits and a
consideration of the relevant taxing authority’s administrative practices and precedents. To the
extent that the final tax outcome of these matters is different from the amounts recorded, such differences
will impact the provision for income taxes in the period in which such determination is made. The provision
for income taxes includes the impact of reserve provisions and changes to reserves that are considered
appropriate, as well as the related net interest and penalties. We believe we have provided adequate
reserves for all uncertain tax positions.
Legal
and Other Contingencies —
The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An
estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income
if it is probable that an asset has been impaired or a liability has been incurred and the amount of the
loss can be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other
factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate
of the amount of loss. Significant judgement is required in determining whether a loss should be accrued,
and changes in these factors could materially impact our Consolidated Financial Statements.
Inventories
—
We state our inventory at the lower of cost or net realizable value. We record a write-down for inventories
of components and products, including third-party products held for resale, which have become obsolete or
are in excess of anticipated demand or net realizable value. We perform a detailed review of inventory each
fiscal quarter
that considers multiple factors, including demand forecasts, product life cycle status, product development
plans, current sales levels, product pricing, and component cost trends. The industries in which we compete
are subject to demand changes. If future demand or market conditions for our products are less favorable
than forecasted
or if unforeseen technological changes negatively impact the utility of component inventory, we may be
required to record additional write-downs, which would adversely affect our gross margin.
Recently
Issued Accounting Pronouncements
See
Note 2 of the Notes to the Consolidated Financial Statements included in this report for a summary of
recently issued accounting pronouncements that are applicable to our Consolidated Financial
Statements.
ITEM 7A —
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dell
Technologies is exposed to a variety of market risks, including risks associated with foreign currency
exchange rate fluctuations, interest rate changes affecting its variable-rate debt, and changes in the
market value of equity investments. In the normal course of business, Dell Technologies employs established
policies and procedures to manage these risks.
Foreign
Currency Risk
During
Fiscal 2023, the principal foreign currencies in which Dell Technologies transacted business were the Euro,
Chinese Renminbi, Japanese Yen, British Pound, Indian Rupee, and Australian Dollar. The objective of Dell
Technologies in managing its exposures to foreign currency exchange rate fluctuations is to reduce the
impact of adverse fluctuations associated with foreign currency exchange rate changes on earnings and cash
flows. Accordingly, Dell Technologies utilizes foreign currency option contracts and forward contracts to
hedge its exposure on forecasted transactions and firm commitments for certain currencies. Dell Technologies
monitors its foreign currency exchange exposures to ensure the overall effectiveness of its foreign currency
hedge positions. However, there can be no assurance that the foreign currency hedging activities will
continue to substantially offset the impact of fluctuations in currency exchange rates on Dell
Technologies’ results of operations and financial position in the future.
Based
on the outstanding foreign currency hedge instruments of Dell Technologies, which include designated and
non-designated instruments, there was a maximum potential one-day loss in fair value at
a 95%
confidence level of approximately $37 million
as
of February 3, 2023
and $16 million as of January 28, 2022 using a Value-at-Risk (“VAR”) model. By using
market implied rates and incorporating volatility and correlation among the currencies of a portfolio, the
VAR model simulates 10,000 randomly generated market prices and calculates the difference between the fifth
percentile and the average as the Value-at-Risk. The VAR model is a risk estimation tool and is not intended
to represent actual losses in fair value that could be incurred. Additionally, as Dell Technologies utilizes
foreign currency instruments for hedging forecasted and firmly committed transactions, a loss in fair value
for those instruments is generally offset by increases in the value of the underlying exposure.
Interest
Rate Risk
Dell
Technologies is primarily exposed to interest rate risk related to its variable-rate debt portfolio and
fixed-rate debt which has been converted to variable-rate debt through the use of derivative instruments. As
of February 3, 2023, the majority of this risk exposure is related to DFS borrowings.
DFS
debt represents borrowings under securitization programs and structured financing programs that facilitate
the funding of leases, loans, and other alternative payment structures. Amounts outstanding under these
facilities generally bear interest at variable rates equal to applicable margins plus specified base rates.
Interest expense on such borrowings is recognized within interest and other, net whereas interest income on
the underlying assets is recognized to net revenue over time. The Company uses interest rate swaps to hedge
the variability in cash flows related to the interest rate payments on such borrowings. These contracts are
not designated for hedge accounting and mark-to-market adjustments are recognized immediately within
interest and other, net.
Dell
Technologies’ interest rate risk exposure is limited to fluctuations in interest rates on unhedged
borrowings where we do not mitigate the interest rate risk through the use of interest rate swaps.
As
of February 3, 2023, borrowings exposed to interest rate fluctuations were $5 billion, relative to
total borrowings of $29.6 billion, and accrued interest at an annual rate between 2.49% and 6.58%. Based on
this debt outstanding as of February 3, 2023, a 100 basis point increase in interest rates would have
resulted in an increase of approximately $50 million in annual interest expense.
By
comparison, as of January 28, 2022, borrowings exposed to interest rate fluctuations were
$3.8 billion relative to total borrowings of $27 billion, and accrued interest at an annual rate
between (1.5)% and 4.1%. Based on this debt outstanding as of January 28, 2022, a 100 basis point
increase in interest rates would have resulted in an increase of approximately $38 million in annual
interest expense.
For
more information about our debt and use of derivative instruments, see Note 6, Note 8, and Note 9 of the
Notes to the Consolidated Financial Statements included in this report.
Transition
from LIBOR to Alternative Reference Rates
— The London Interbank Offered Rate (“LIBOR”) is the subject of recent regulatory guidance
and proposals for reform. As a result of these reforms, the ICE Benchmark Administration Limited, the
administrator of LIBOR, ceased publication for the one-week and two-month USD LIBOR settings on December 31,
2021 and is expected to begin phasing out the remaining USD LIBOR settings on July 1, 2023. We have
completed identification of impacted financial instruments and contracts and have been working to transition
such contracts linked to LIBOR to alternative reference rates.
Equity
Price Risk
Strategic
Investments
— Our strategic investments include early-stage, privately-held companies that are considered to be in
the start-up or development stages and are inherently risky. The technologies or products these companies
have under development are typically in the early stages and may never materialize, which could result in a
loss of a substantial part of our initial investment in the companies. We record these investments at cost,
less impairment, adjusted for observable price changes. The evaluation is based on information provided by
these companies, which are not subject to the same disclosure obligations as U.S. publicly-traded companies,
and as such, the basis for these evaluations is subject to the timing and accuracy of the data provided.
During Fiscal 2023, we recognized a net loss of $206 million on our strategic investments, which was
generally in line with overall public equity market declines. As of February 3, 2023 and
January 28, 2022, we held strategic investments in non-marketable securities of $1.3 billion and $1.4
billion, respectively.
See
Note 5 of the Notes to the Consolidated Financial Statements included in this report for additional
information.
ITEM
8 —
FINANCIAL STATEMENTS
Index
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of Dell Technologies Inc.
Opinions
on the Financial Statements and Internal Control over Financial Reporting
We
have audited the accompanying consolidated statements of financial position of Dell Technologies
Inc.
and
its subsidiaries (the “Company”) as of February 3, 2023
and
January 28, 2022,
and
the related consolidated
statements
of income, of comprehensive income, of stockholders’ equity (deficit) and of cash flows for each of
the three years in the period ended February 3, 2023, including the related notes (collectively
referred to as the “consolidated financial statements”).
We
also have audited the Company's internal control over financial reporting as of February 3, 2023, based
on criteria established in Internal
Control - Integrated Framework
(2013)
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In
our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of February 3, 2023
and
January 28, 2022, and the results of its
operations
and its
cash
flows for each of the three years in the period ended February 3, 2023 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of February 3, 2023,
based on criteria established in Internal
Control - Integrated Framework
(2013)
issued
by the COSO.
Basis
for Opinions
The
Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting, included in Management’s Annual Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on
our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over
financial reporting was maintained in all material respects.
Our
audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition
and Limitations of Internal Control over Financial Reporting
A
company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical
Audit Matters
The
critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue
Recognition - Identification of Performance Obligations in Revenue Contracts
As
described in Notes 2 and 19 to the consolidated financial statements, the Company’s contracts with
customers often include the promise to transfer multiple goods and services to a customer. Distinct promises
within a contract are referred to as performance obligations and are accounted for as separate units of
account. Management assesses whether each promised good or service is distinct for the purpose of
identifying the performance obligations in the contract. This assessment involves subjective determinations
and requires management to make judgments about the individual promised goods or services and whether such
goods or services are separable from the other aspects of the contractual relationship. The Company’s
performance obligations include various distinct goods and services such as hardware, software licenses,
support and maintenance agreements, and other service offerings and solutions. For the year ended
February 3, 2023, a significant portion of the $38.4 billion Infrastructure Solutions Group
(“ISG”) reportable segment net revenues relate to contracts with multiple performance
obligations.
The
principal considerations for our determination that performing procedures relating to the identification of
performance obligations in revenue contracts is a critical audit matter are the significant judgment by
management in identifying performance obligations in revenue contracts, which in turn led to a high degree
of auditor judgment, subjectivity and effort in performing procedures to evaluate whether performance
obligations in revenue contracts were appropriately identified by management.
Addressing
the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the
effectiveness of controls relating to the revenue recognition process, including controls related to the
proper identification of performance obligations in revenue contracts. These procedures also included, among
others, testing the completeness and accuracy of management’s identification of performance
obligations by examining revenue contracts on a test basis.
/s/
PricewaterhouseCoopers LLP
Austin, Texas
March
30, 2023
We
have served as the Company’s auditor since 1986.
DELL
TECHNOLOGIES INC.
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
| ASSETS
|
|
Current
assets: |
|
|
|
|
Cash
and cash equivalents |
$
|
8,607
|
|
|
$
|
9,477
|
|
|
Accounts
receivable, net of allowance of $78
and $90
|
12,482
|
|
|
12,912
|
|
|
Due
from related party, net |
378
|
|
|
131
|
|
|
Short-term
financing receivables, net of allowance of $142
and $142
(Note 6)
|
5,281
|
|
|
5,089
|
|
|
Inventories
|
4,776
|
|
|
5,898
|
|
|
Other
current assets |
10,827
|
|
|
11,526
|
|
|
Total
current assets |
42,351
|
|
|
45,033
|
|
|
Property,
plant, and equipment, net |
6,209
|
|
|
5,415
|
|
|
Long-term
investments |
1,518
|
|
|
1,839
|
|
|
Long-term
financing receivables, net of allowance of $59
and $47
(Note 6)
|
5,638
|
|
|
5,522
|
|
|
Goodwill
|
19,676
|
|
|
19,770
|
|
|
Intangible
assets, net |
6,468
|
|
|
7,461
|
|
|
Due
from related party, net |
440
|
|
|
710
|
|
|
Other
non-current assets |
7,311
|
|
|
6,985
|
|
|
Total
assets |
$
|
89,611
|
|
|
$
|
92,735
|
|
| LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
Current
liabilities: |
|
|
|
|
Short-term
debt |
$
|
6,573
|
|
|
$
|
5,823
|
|
|
Accounts
payable |
18,598
|
|
|
27,143
|
|
|
Due
to related party |
2,067
|
|
|
1,414
|
|
|
Accrued
and other |
8,874
|
|
|
7,578
|
|
|
Short-term
deferred revenue |
15,542
|
|
|
14,261
|
|
|
Total
current liabilities |
51,654
|
|
|
56,219
|
|
|
Long-term
debt |
23,015
|
|
|
21,131
|
|
|
Long-term
deferred revenue |
14,744
|
|
|
13,312
|
|
|
Other
non-current liabilities |
3,223
|
|
|
3,653
|
|
|
Total
liabilities |
$
|
92,636
|
|
|
$
|
94,315
|
|
|
Commitments
and contingencies (Note 12)
|
|
|
|
|
Stockholders’
equity (deficit): |
|
|
|
|
Common
stock and capital in excess of $
0.01
par value (Note 15)
|
8,424
|
|
|
7,898
|
|
|
Treasury
stock at cost |
(
3,813) |
|
|
(
964
) |
|
|
Accumulated
deficit |
(
6,732) |
|
|
(
8,188) |
|
|
Accumulated
other comprehensive loss |
(
1,001) |
|
|
(
431) |
|
|
Total
Dell Technologies Inc. stockholders’ equity (deficit) |
(
3,122) |
|
|
(
1,685) |
|
|
Non-controlling
interests |
97
|
|
|
105
|
|
|
Total
stockholders’ equity (deficit) |
(
3,025) |
|
|
(
1,580) |
|
|
Total
liabilities and stockholders’ equity |
$
|
89,611
|
|
|
$
|
92,735
|
|
The
accompanying notes are an integral part of these Consolidated Financial Statements.
DELL
TECHNOLOGIES INC.
CONSOLIDATED
STATEMENTS OF INCOME
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
Net
revenue: |
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
|
|
$
|
79,250
|
|
|
$
|
79,830
|
|
|
$
|
67,744
|
|
|
Services
|
|
|
|
|
23,051
|
|
|
21,367
|
|
|
18,926
|
|
|
Total
net revenue |
|
|
|
|
102,301
|
|
|
101,197
|
|
|
86,670
|
|
|
Cost
of net revenue (a): |
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
|
|
66,029
|
|
|
67,224
|
|
|
56,431
|
|
|
Services
|
|
|
|
|
13,586
|
|
|
12,082
|
|
|
10,099
|
|
|
Total
cost of net revenue |
|
|
|
|
79,615
|
|
|
79,306
|
|
|
66,530
|
|
|
Gross
margin |
|
|
|
|
22,686
|
|
|
21,891
|
|
|
20,140
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative |
|
|
|
|
14,136
|
|
|
14,655
|
|
|
14,000
|
|
|
Research
and development |
|
|
|
|
2,779
|
|
|
2,577
|
|
|
2,455
|
|
|
Total
operating expenses |
|
|
|
|
16,915
|
|
|
17,232
|
|
|
16,455
|
|
|
Operating
income |
|
|
|
|
5,771
|
|
|
4,659
|
|
|
3,685
|
|
|
Interest
and other, net |
|
|
|
|
(
2,546) |
|
|
1,264
|
|
|
(
1,339) |
|
|
Income
before income taxes |
|
|
|
|
3,225
|
|
|
5,923
|
|
|
2,346
|
|
|
Income
tax expense |
|
|
|
|
803
|
|
|
981
|
|
|
101
|
|
|
Net
income from continuing operations |
|
|
|
|
2,422
|
|
|
4,942
|
|
|
2,245
|
|
|
Income
from discontinued operations, net of income taxes (Note 3)
|
|
|
|
|
—
|
|
|
765
|
|
|
1,260
|
|
|
Net
income |
|
|
|
|
2,422
|
|
|
5,707
|
|
|
3,505
|
|
|
Less:
Net loss attributable to non-controlling interests |
|
|
|
|
(
20) |
|
|
(
6) |
|
|
(
4) |
|
|
Less:
Net income attributable to non-controlling interests of discontinued operations |
|
|
|
|
—
|
|
|
150
|
|
|
259
|
|
|
Net
income attributable to Dell Technologies Inc. |
|
|
|
|
$
|
2,442
|
|
|
$
|
5,563
|
|
|
$
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share attributable to Dell Technologies Inc. — basic: |
|
Continuing
operations |
|
|
|
|
$
|
3.33
|
|
|
$
|
6.49
|
|
|
$
|
3.02
|
|
|
Discontinued
operations |
|
|
|
|
$
|
—
|
|
|
$
|
0.81
|
|
|
$
|
1.35
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share attributable to Dell Technologies Inc. — diluted: |
|
Continuing
operations |
|
|
|
|
$
|
3.24
|
|
|
$
|
6.26
|
|
|
$
|
2.93
|
|
|
Discontinued
operations |
|
|
|
|
$
|
—
|
|
|
$
|
0.76
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Includes related party cost of net revenue as follows (Note 21):
|
|
Products
|
|
|
|
|
$
|
1,634
|
|
|
$
|
1,577
|
|
|
$
|
1,493
|
|
|
Services
|
|
|
|
|
$
|
3,065
|
|
|
$
|
2,487
|
|
|
$
|
1,848
|
|
The
accompanying notes are an integral part of these Consolidated Financial Statements.
DELL TECHNOLOGIES INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
Net
income |
|
|
|
|
$
|
2,422
|
|
|
$
|
5,707
|
|
|
$
|
3,505
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments |
|
|
|
|
(
222) |
|
|
(
385) |
|
|
528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges: |
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains (losses) |
|
|
|
|
354
|
|
|
374
|
|
|
(
200) |
|
|
Reclassification
adjustment for net (gains) losses included in net income |
|
|
|
|
(
705) |
|
|
(
158) |
|
|
100
|
|
|
Net
change in cash flow hedges |
|
|
|
|
(
351) |
|
|
216
|
|
|
(
100) |
|
|
Pension
and other postretirement plans: |
|
|
|
|
|
|
|
|
|
|
Recognition
of actuarial net gains (losses) from pension and other postretirement plans |
|
|
|
|
1
|
|
|
37
|
|
|
(
38) |
|
|
Reclassification
adjustments for net losses from pension and other postretirement plans |
|
|
|
|
1
|
|
|
7
|
|
|
5
|
|
|
Net
change in actuarial net gains (losses) from pension and other postretirement plans |
|
|
|
|
2
|
|
|
44
|
|
|
(
33) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive income (loss), net of tax expense (benefit) of $(17), $30
and $(18
), respectively
|
|
|
|
|
(
571) |
|
|
(
125) |
|
|
395
|
|
|
Comprehensive
income, net of tax |
|
|
|
|
1,851
|
|
|
5,582
|
|
|
3,900
|
|
|
Less:
Net income (loss) attributable to non-controlling interests |
|
|
|
|
(
20) |
|
|
144
|
|
|
255
|
|
|
Less:
Other comprehensive loss attributable to non-controlling interests |
|
|
|
|
(
1) |
|
|
—
|
|
|
—
|
|
|
Comprehensive
income attributable to Dell Technologies Inc. |
|
|
|
|
$
|
1,872
|
|
|
$
|
5,438
|
|
|
$
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these Consolidated Financial Statements.
DELL
TECHNOLOGIES INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions; continued on next page)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
Cash
flows from operating activities: |
|
|
|
|
|
|
Net
income |
$
|
2,422
|
|
|
$
|
5,707
|
|
|
$
|
3,505
|
|
|
Adjustments
to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation
and amortization |
3,156
|
|
|
4,551
|
|
|
5,390
|
|
|
Stock-based
compensation expense |
931
|
|
|
1,622
|
|
|
1,609
|
|
|
Deferred
income taxes |
(
717) |
|
|
(
365) |
|
|
(
399) |
|
|
Other,
net (a) |
961
|
|
|
(
3,130) |
|
|
(
88
) |
|
|
Changes
in assets and liabilities, net of effects from acquisitions and dispositions: |
|
|
|
|
|
|
Accounts
receivable |
113
|
|
|
(
2,193) |
|
|
(
396
) |
|
|
Financing
receivables |
(
461
) |
|
|
(
241
) |
|
|
(
728
) |
|
|
Inventories
|
875
|
|
|
(
2,514) |
|
|
(
243
) |
|
|
Other
assets and liabilities |
973
|
|
|
(
1,948) |
|
|
(
1,656) |
|
|
Due
from/to related party, net |
649
|
|
|
479
|
|
|
—
|
|
|
Accounts
payable |
(
8,546) |
|
|
5,742
|
|
|
1,598
|
|
|
Deferred
revenue |
3,209
|
|
|
2,597
|
|
|
2,815
|
|
|
Change
in cash from operating activities |
3,565
|
|
|
10,307
|
|
|
11,407
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
Purchases
of equity and other investments |
(
94
) |
|
|
(
256) |
|
|
(
162) |
|
|
Purchases
of held-to-maturity investments |
(
14) |
|
|
(
158) |
|
|
(
176) |
|
|
Maturities
and sales of equity and other investments |
116
|
|
|
513
|
|
|
169
|
|
|
Capital
expenditures and capitalized software development costs |
(
3,003) |
|
|
(
2,796) |
|
|
(
2,082) |
|
|
Acquisition
of businesses and assets, net |
(
70) |
|
|
(
16) |
|
|
(
424) |
|
|
Divestitures
of businesses, net |
—
|
|
|
3,957
|
|
|
2,187
|
|
|
Other
|
41
|
|
|
62
|
|
|
28
|
|
|
Change
in cash from investing activities |
(
3,024) |
|
|
1,306
|
|
|
(
460) |
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
Dividends
paid by VMware, Inc. to non-controlling interests
|
—
|
|
|
(
2,240) |
|
|
—
|
|
|
Proceeds
from the issuance of common stock
|
5
|
|
|
334
|
|
|
452
|
|
|
Repurchases
of parent common stock (b)
|
(
3,272) |
|
|
(
663
) |
|
|
(
241
) |
|
|
Repurchases
of subsidiary common stock |
(
9
) |
|
|
(
1,175) |
|
|
(
1,363) |
|
|
Net
transfer of cash, cash equivalents, and restricted cash to VMware, Inc. |
—
|
|
|
(
5,052) |
|
|
—
|
|
|
Payments
of dividends to stockholders |
(
964
) |
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Proceeds
from debt |
12,479
|
|
|
20,425
|
|
|
16,391
|
|
|
Repayments
of debt |
(
9,825) |
|
|
(
26,723) |
|
|
(
20,919) |
|
|
Debt-related
costs and other, net |
(
39) |
|
|
(
1,515) |
|
|
(
270) |
|
|
Change
in cash from financing activities |
(
1,625) |
|
|
(
16,609) |
|
|
(
5,950) |
|
|
|
|
|
|
|
|
|
|
|
|
|
____________________
(a)
During the fiscal year ended
January 28, 2022, other, net, includes $4.0
billion pre-tax gain on the sale of Boomi.
(b)
Common stock repurchases are
inclusive of employee tax withholding on stock-based compensation.
The
accompanying notes are an integral part of these Consolidated Financial Statements.
DELL
TECHNOLOGIES INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(continued;
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
Effect
of exchange rate changes on cash, cash equivalents, and restricted cash |
(
104) |
|
|
(
106) |
|
|
36
|
|
|
Change
in cash, cash equivalents, and restricted cash |
(
1,188) |
|
|
(
5,102) |
|
|
5,033
|
|
|
Cash,
cash equivalents, and restricted cash at beginning of the period, including cash attributable to
discontinued operations |
10,082
|
|
|
15,184
|
|
|
10,151
|
|
|
Cash,
cash equivalents, and restricted cash at end of the period, including cash attributable to
discontinued operations |
8,894
|
|
|
10,082
|
|
|
15,184
|
|
|
Less:
Cash, cash equivalents, and restricted cash attributable to discontinued operations |
—
|
|
|
—
|
|
|
4,770
|
|
|
Cash,
cash equivalents, and restricted cash from continuing operations |
$
|
8,894
|
|
|
$
|
10,082
|
|
|
$
|
10,414
|
|
|
Income
tax paid |
$
|
1,208
|
|
|
$
|
1,257
|
|
|
$
|
1,421
|
|
|
Interest
paid |
$
|
1,169
|
|
|
$
|
1,825
|
|
|
$
|
2,279
|
|
The
accompanying notes are an integral part of these Consolidated Financial Statements.
DELL
TECHNOLOGIES INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in
millions; continued on next page)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock and Capital in Excess of Par Value |
|
Treasury
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
Shares |
|
Amount
|
|
Shares
|
|
Amount
|
|
Accumulated
Deficit |
|
Accumulated
Other Comprehensive Income/(Loss) |
|
Dell
Technologies Stockholders’ Equity (Deficit) |
|
Non-Controlling
Interests |
|
Total
Stockholders’ Equity (Deficit) |
|
Balances
as of January 31, 2020 |
745
|
|
|
$
|
16,091
|
|
|
2
|
|
|
$
|
(
65) |
|
|
$
|
(
16,891) |
|
|
$
|
(
709) |
|
|
$
|
(
1,574) |
|
|
$
|
4,729
|
|
|
$
|
3,155
|
|
|
Adjustment
for adoption of accounting standards |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
110) |
|
|
—
|
|
|
(
110) |
|
|
—
|
|
|
(
110) |
|
|
Net
income |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,250
|
|
|
—
|
|
|
3,250
|
|
|
255
|
|
|
3,505
|
|
|
Foreign
currency translation adjustments |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
528
|
|
|
528
|
|
|
—
|
|
|
528
|
|
|
Cash
flow hedges, net change |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
100) |
|
|
(
100) |
|
|
—
|
|
|
(
100) |
|
|
Pension
and other post-retirement |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
33) |
|
|
(
33) |
|
|
—
|
|
|
(
33) |
|
|
Issuance
of common stock, net of shares repurchased for employee tax withholding
|
16
|
|
|
178
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
178
|
|
|
—
|
|
|
178
|
|
|
Stock-based
compensation expense |
—
|
|
|
462
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
462
|
|
|
1,147
|
|
|
1,609
|
|
|
Treasury
stock repurchases |
—
|
|
|
—
|
|
|
6
|
|
|
(
240
) |
|
|
—
|
|
|
—
|
|
|
(
240
) |
|
|
—
|
|
|
(
240
) |
|
|
Revaluation
of redeemable shares |
—
|
|
|
157
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
157
|
|
|
—
|
|
|
157
|
|
|
Impact
from equity transactions of non-controlling interests |
—
|
|
|
(
39
) |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
39
) |
|
|
(
1,057) |
|
|
(
1,096) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
as of January 29, 2021
|
761
|
|
|
$
|
16,849
|
|
|
8
|
|
|
$
|
(
305) |
|
|
$
|
(
13,751) |
|
|
$
|
(
314) |
|
|
$
|
2,479
|
|
|
$
|
5,074
|
|
|
$
|
7,553
|
|
The
accompanying notes are an integral part of these Consolidated Financial Statements.
DELL
TECHNOLOGIES INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in
millions; continued on next page)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock and Capital in Excess of Par Value |
|
Treasury
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
Shares |
|
Amount
|
|
Shares
|
|
Amount
|
|
Accumulated
Deficit |
|
Accumulated
Other Comprehensive Income/(Loss) |
|
Dell
Technologies Stockholders’ Equity (Deficit) |
|
Non-Controlling
Interests |
|
Total
Stockholders’ Equity (Deficit) |
|
Balances
as of January 29, 2021
|
761
|
|
|
$
|
16,849
|
|
|
8
|
|
|
$
|
(
305) |
|
|
$
|
(
13,751) |
|
|
$
|
(
314) |
|
|
$
|
2,479
|
|
|
$
|
5,074
|
|
|
$
|
7,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,563
|
|
|
—
|
|
|
5,563
|
|
|
144
|
|
|
5,707
|
|
|
Foreign
currency translation adjustments |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
385) |
|
|
(
385) |
|
|
—
|
|
|
(
385) |
|
|
Cash
flow hedges, net change |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
216
|
|
|
216
|
|
|
—
|
|
|
216
|
|
|
Pension
and other post-retirement |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
44
|
|
|
—
|
|
|
44
|
|
|
Issuance
of common stock, net of shares repurchased for employee tax withholding
|
16
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
|
Stock-based
compensation expense |
—
|
|
|
777
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
777
|
|
|
845
|
|
|
1,622
|
|
|
Treasury
stock repurchases |
—
|
|
|
—
|
|
|
12
|
|
|
(
659
) |
|
|
—
|
|
|
—
|
|
|
(
659
) |
|
|
—
|
|
|
(
659
) |
|
|
Revaluation
of redeemable shares |
—
|
|
|
472
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
472
|
|
|
—
|
|
|
472
|
|
|
Impact
from equity transactions of non-controlling interests |
—
|
|
|
(
60
) |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
60
) |
|
|
(
823) |
|
|
(
883) |
|
|
Dividends
paid by VMware, Inc. to non-controlling interests |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
2,240) |
|
|
(
2,240) |
|
|
Spin-off
of VMware, Inc. |
—
|
|
|
(
10,162) |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
(
10,154) |
|
|
(
2,895) |
|
|
(
13,049) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
as of January 28, 2022
|
777
|
|
|
$
|
7,898
|
|
|
20
|
|
|
$
|
(
964) |
|
|
$
|
(
8,188) |
|
|
$
|
(
431) |
|
|
$
|
(
1,685) |
|
|
$
|
105
|
|
|
$
|
(
1,580) |
|
The
accompanying notes are an integral part of these Consolidated Financial Statements.
DELL
TECHNOLOGIES INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(continued;
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock and Capital in Excess of Par Value |
|
Treasury
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
Shares |
|
Amount
|
|
Shares
|
|
Amount
|
|
Accumulated
Deficit |
|
Accumulated
Other Comprehensive Income/(Loss) |
|
Dell
Technologies Stockholders’ Equity (Deficit) |
|
Non-Controlling
Interests |
|
Total
Stockholders’ Equity (Deficit) |
|
Balances
as of January 28, 2022
|
777
|
|
|
$
|
7,898
|
|
|
20
|
|
|
$
|
(
964) |
|
|
$
|
(
8,188) |
|
|
$
|
(
431) |
|
|
$
|
(
1,685) |
|
|
$
|
105
|
|
|
$
|
(
1,580) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,442
|
|
|
—
|
|
|
2,442
|
|
|
(
20
) |
|
|
2,422
|
|
|
Dividends
and dividend equivalents declared ($1.32
per common share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
986
) |
|
|
—
|
|
|
(
986
) |
|
|
—
|
|
|
(
986
) |
|
|
Foreign
currency translation adjustments |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
221) |
|
|
(
221) |
|
|
(
1) |
|
|
(
222) |
|
|
Cash
flow hedges, net change |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
351) |
|
|
(
351) |
|
|
—
|
|
|
(
351) |
|
|
Pension
and other post-retirement |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Issuance
of common stock, net of shares repurchased for employee tax withholding
|
21
|
|
|
(
383) |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(
383) |
|
|
—
|
|
|
(
383) |
|
|
Stock-based
compensation expense |
—
|
|
|
895
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
895
|
|
|
36
|
|
|
931
|
|
|
Treasury
stock repurchases |
—
|
|
|
—
|
|
|
62
|
|
|
(
2,849) |
|
|
—
|
|
|
—
|
|
|
(
2,849) |
|
|
—
|
|
|
(
2,849) |
|
|
Impact
from equity transactions of non-controlling interests |
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
(
23
) |
|
|
(
9
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
as of February 3, 2023
|
798
|
|
|
$
|
8,424
|
|
|
82
|
|
|
$
|
(
3,813) |
|
|
$
|
(
6,732) |
|
|
$
|
(
1,001) |
|
|
$
|
(
3,122) |
|
|
$
|
97
|
|
|
$
|
(
3,025) |
|
The
accompanying notes are an integral part of these Consolidated Financial Statements.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — BASIS OF PRESENTATION
References in these Notes to the Consolidated Financial Statements to the
“Company” or “Dell Technologies” mean Dell Technologies Inc. individually
and together with its consolidated subsidiaries.
Basis
of Presentation — These
Consolidated Financial Statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”).
The
Company’s fiscal year is the 52- or 53-week period ending on the Friday nearest January 31.
The fiscal year ended February 3, 2023 was a 53-week period. The fiscal years ended
January 28, 2022 and January 29, 2021 were 52-week periods.
Spin-Off
of VMware, Inc.
— On November 1, 2021, the Company completed its spin-off of VMware, Inc. (NYSE: VMW)
(individually and together with its consolidated subsidiaries, “VMware”) by means of a
special stock dividend (the “VMware Spin-off”). The VMware Spin-off was effectuated pursuant
to a Separation and Distribution Agreement, dated as of April 14, 2021, between Dell Technologies and
VMware (the “Separation and Distribution Agreement”).
Pursuant
to the Commercial Framework Agreement (the “CFA”) between Dell Technologies and VMware, Dell
Technologies continues to act as a distributor of VMware’s standalone products and services and
purchase such products and services for resale to customers. Dell Technologies also continues to
integrate VMware’s products and services with Dell Technologies’ offerings and sell them to
customers. The results of such operations are presented as continuing operations within the
Company’s Consolidated Statements of Income for all periods presented.
In
accordance with applicable accounting guidance, the results of VMware, excluding Dell Technologies'
resale of VMware offerings, are presented as discontinued operations in the Consolidated Statements of
Income and, as such, have been excluded from both continuing operations and segment results for all
periods presented prior to the completion of the VMware Spin-off. The Consolidated Statements of Cash
Flows are presented on a consolidated basis for both continuing operations and discontinued operations.
See Note 3 of the Notes to the Consolidated Financial Statements for additional information on the
VMware Spin-off.
Boomi
Divestiture —
On October 1, 2021, Dell Technologies completed the sale of Boomi, Inc. (“Boomi”) and
certain related assets. At the completion of the sale, the Company received total cash consideration of
approximately $4.0 billion, resulting in a pre-tax gain on sale of $
4.0 billion recognized in interest and other, net on the
Consolidated Statements of Income. The Company ultimately recorded a $3.0 billion gain, net of $1.0 billion in tax expense. Prior to the divestiture, Boomi’s
operating results were included within other businesses and the divestiture did not qualify for
presentation as a discontinued operation.
RSA
Security Divestiture
— On September 1, 2020, Dell Technologies completed the sale of RSA Security LLC (“RSA
Security”) for total cash consideration of approximately $2.1 billion, resulting in a pre-tax gain on sale of $
338 million. The Company ultimately recorded a $21 million loss, net of $359 million in tax expense due to the relatively low tax basis for
the assets sold, particularly goodwill. Prior to the divestiture, RSA Security’s operating results
were included within other businesses and the divestiture did not qualify for presentation as a
discontinued operation.
Secureworks
— As of February 3, 2023 and January 28, 2022, the Company held approximately
82.6
% and 83.9
%, respectively, of the outstanding equity interest in Secureworks, excluding
restricted stock awards (“RSAs”), and approximately 82.6% and 83.1%, respectively, of the equity interest, including RSAs.
The portion of the results of operations of Secureworks allocable to its other owners is shown as net
income (loss) attributable to the non-controlling interests in the Consolidated Statements of Income, as
an adjustment to net income attributable to Dell Technologies stockholders. The non-controlling
interests’ share of equity in Secureworks is reflected as a component of the non-controlling
interests in the Consolidated Statements of Financial Position and was $97 million and $105 million as of
February 3, 2023 and January 28, 2022, respectively.
Other Events
— During the fiscal year ended
February 3, 2023, Dell Technologies recognized $171
million in costs associated with exiting the Company’s business in Russia,
primarily related to asset impairments and other exit related costs.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE
2 — DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Description
of Business —
Dell Technologies is a leading global end-to-end technology provider that designs, develops,
manufactures, markets, sells, and supports a wide range of comprehensive and integrated solutions,
products, and services. Dell Technologies offerings include servers and networking, storage, cloud
solutions, desktops, notebooks, services, software, and third-party software and peripherals.
Principles
of Consolidation —
These Consolidated Financial Statements include the accounts of Dell Technologies and its
wholly-owned subsidiaries, as well as the accounts of Secureworks, which, as indicated above, is
majority-owned by Dell Technologies, and VMware through the date of the VMware Spin-off. All
intercompany transactions have been eliminated.
The
Company also consolidates Variable Interest Entities ("VIEs") where it has been determined that the
Company is the primary beneficiary of the applicable entities’ operations. For each VIE, the
primary beneficiary is the party that has both the power to direct the activities that most
significantly impact the VIE's economic performance and the obligation to absorb losses or the right
to receive benefits of the VIE that could potentially be significant to such VIE. In evaluating
whether the Company is the primary beneficiary of each entity, the Company evaluates its power to
direct the most significant activities of the VIE by considering the purpose and design of each
entity and the risks each entity was designed to create and pass through to its respective variable
interest holders. The Company also evaluates its economic interests in each of the VIEs. See Note 6
of the Notes to the Consolidated Financial Statements for more information regarding consolidated
VIEs.
Use
of Estimates —
The preparation of financial statements in accordance with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements
and the accompanying Notes. Actual results could differ materially from those estimates.
Cash
and Cash Equivalents —
All highly liquid investments, including credit card receivables due from banks, with original
maturities of 90 days or less at date of purchase, are reported at fair value and are considered to
be cash equivalents. All other investments not considered to be cash equivalents are separately
categorized as investments.
Investments
—
The Company has strategic investments in equity securities as well as investments in fixed-income
debt securities. All equity and other securities and long-term fixed income debt securities are
recorded as long-term investments in the Consolidated Statements of Financial Position. Short-term
fixed income debt securities are recorded as other current assets in the Consolidated Statements of
Financial Position.
Strategic
investments in marketable equity and other securities are recorded at fair value based on quoted
prices in active markets. Strategic investments in non-marketable equity and other securities
without readily determinable fair values are recorded at cost, less impairment, and are adjusted for
observable price changes. Fair value measurements and impairments for strategic investments are
recognized in interest and other, net in the Consolidated Statements of Income. In evaluating equity
investments without readily determinable fair values for impairment or observable price changes, the
Company uses inputs that include pre- and post-money valuations of recent financing events and the
impact of those events on its fully diluted ownership percentages, as well as other available
information regarding the issuer’s historical and forecasted performance.
Fixed-income debt securities are carried at
amortized cost. The Company intends to hold the fixed-income debt securities to maturity.
Allowance
for Expected Credit Losses —
The Company recognizes an allowance for losses on accounts receivable in an amount equal to the
current expected credit losses. The estimation of the allowance is based on an analysis of
historical loss experience, current receivables aging, and management’s assessment of current
conditions and reasonable and supportable expectation of future conditions, as well as an assessment
of specific identifiable customer accounts considered at risk or uncollectible. The Company assesses
collectibility by pooling receivables where similar characteristics exist and evaluates receivables
individually when specific customer balances no longer share those risk characteristics and are
considered at risk or uncollectible. The expense associated with the allowance for expected credit
losses is recognized in selling, general, and administrative expenses.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounting
for Operating Leases as a Lessee — In
its ordinary course of business, the Company enters into leases as a lessee for office buildings,
warehouses, employee vehicles, and equipment. The Company determines if an arrangement is a lease or
contains a lease at inception. The Company’s leases are generally classified as operating
leases. Finance leases are immaterial. Operating leases result in the recognition of right of use
(“ROU”) assets and lease liabilities on the Consolidated Statements of Financial
Position. ROU assets represent the right to use an underlying asset for the lease term and lease
liabilities represent the obligation to make lease payments arising from the lease, measured on a
discounted basis. At lease commencement, the lease liability is measured at the present value of the
lease payments over the lease term. The operating lease ROU asset equals the lease liability
adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. The Company
uses the implicit rate when readily determinable. As most of the leases do not provide an implicit
rate, the Company uses its incremental borrowing rate based on the information available at the
commencement date to determine the present value of lease payments.
The
lease term may include options to extend or to terminate the lease that the Company is reasonably
certain to exercise. The Company has elected not to record leases with an initial term of 12 months
or less on the Consolidated Statements of Financial Position. Lease expense is recognized on a
straight-line basis over the lease term in most instances. The Company does not generate material
sublease income and has no material related party leases. The Company’s lease agreements do
not contain any material residual value guarantees or material restrictive covenants.
The
Company’s office building agreements contain costs such as common area maintenance and other
executory costs that may be either fixed or variable in nature. Variable lease costs are expensed as
incurred. The Company combines lease and non-lease components, including fixed common area and other
maintenance costs, in calculating the ROU assets and lease liabilities for its office buildings and
employee vehicles. Under certain service agreements with third-party logistics providers, the
Company directs the use of the inventory within the warehouses and, therefore, controls the assets.
The warehouses and some of the equipment used are considered embedded leases. The Company accounts
for the lease and non-lease components separately. The lease components consist of the warehouses
and some of the equipment, such as conveyor belts. The non-lease components consist of services and
other shared equipment, such as material handling and transportation. The Company allocates the
consideration to the lease and non-lease components using their relative standalone values. See Note
7 of the Notes to the Consolidated Financial Statements for additional information.
Accounting
for Leases as a Lessor — The
Company’s wholly-owned subsidiary Dell Financial Services and its affiliates
(“DFS”) act as a lessor to provide equipment financing to customers through a variety of
lease arrangements (“DFS leases”). The Company’s leases are classified as
sales-type leases, direct financing leases, or operating leases. Direct financing leases are
immaterial.
The
Company also offers alternative payment structures and as-a-Service offerings that are assessed to
determine whether an embedded lease arrangement exists. The Company accounts for those contracts as
a lease arrangement if it is determined that the contract contains an identified asset and that
control of that asset has transferred to the customer.
When
a contract includes lease and non-lease components, the Company allocates consideration under the
contract to each component based on relative standalone selling price and subsequently assesses
lease classification for each lease component within a contract. DFS provides lessees with the
option to extend the lease or purchase the underlying asset at the end of the lease term, which is
considered when evaluating lease classification. In general, DFS’s lease arrangements do not
have variable payment terms and are typically non-cancelable.
On
commencement of sales-type leases, the Company recognizes profit up-front, and amounts due from the
customer under the lease contract are recognized as financing receivables on the Consolidated
Statements of Financial Position. Interest income is recognized as net product revenue over the term
of the lease based on the effective interest method. The Company has elected not to include sales
and other taxes collected from the lessee as part of lease revenue.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
All other leases that do not meet the definition
of a sales-type lease or direct financing lease are classified as operating leases. The underlying
asset in an operating lease arrangement is carried at depreciated cost as “Equipment under
operating leases” within Property, plant, and equipment, net on the Consolidated Statements of
Financial Position. Depreciation is calculated using the straight-line method over the term of the
underlying lease contract and is recognized as cost of net revenue. The depreciable basis is the
original cost of the equipment less the estimated residual value of the equipment at the end of the
lease term. The residual value is based upon estimates of the value of the equipment at the end of
the lease term using historical studies, industry data, and future value-at-risk demand valuation
methods. The Company recognizes operating lease income to product revenue generally on a
straight-line basis over the lease term and expenses deferred initial direct costs on the same
basis. The Company recognizes variable lease income to product revenue generally as earned.
Impairment of equipment under operating leases is assessed on the same basis as other long-lived
assets.
Accounting
for Fixed-Term Loans —
On
commencement of fixed-term loans, the Company may recognize profit up-front or over time depending
on the product or service offering, and amounts due from the customer under the loan agreement are
recognized as financing receivables on the Consolidated Statements of Financial Position. The
Company generally recognizes interest income to product revenue based on the effective interest
method and expenses deferred initial direct costs on a straight-line basis over the loan
term.
Financing
Receivables —
Financing receivables are presented net of allowance for losses and consist of customer receivables
and residual interest. Gross customer receivables include amounts due from customers under revolving
loans, fixed-term loans, fixed-term sales-type or direct financing leases, and accrued interest. The
Company has two portfolios, consisting of (i) fixed-term leases and loans and
(ii) revolving loans, and assesses risk at the portfolio level to determine the appropriate
allowance levels. The portfolio segments are further segregated into classes based on products,
customer type, and credit risk evaluation: (i) Revolving — Dell Preferred Account
(“DPA”); (ii) Revolving — Dell Business Credit (“DBC”); and (iii)
Fixed-term — Consumer and Commercial. Fixed-term leases and loans are offered to qualified
small and medium-sized businesses, large commercial accounts, governmental organizations, and
educational entities. Fixed-term loans are also offered to qualified individual consumers. Revolving
loans are offered under private label credit financing programs. The DPA revolving loan programs are
primarily offered to individual consumers and the DBC revolving loan programs are primarily offered
to small and medium-sized business customers.
The
Company retains a residual interest in equipment leased under its fixed-term lease programs. The
amount of the residual interest is established at the inception of the lease based upon estimates of
the value of the equipment at the end of the lease term using historical studies, industry data, and
future value-at-risk demand valuation methods.
Allowance
for Financing Receivables Losses —
The Company recognizes an allowance for financing receivable losses, including both the lease
receivable and unguaranteed residual, in an amount equal to the expected losses net of recoveries.
The allowance for financing receivable losses on the lease receivable is determined based on various
factors, including lifetime expected losses determined using macroeconomic forecast assumptions and
management judgments applicable to and through the expected life of the portfolios as well as past
due receivables, receivable type, and customer risk profile. Both fixed and revolving financing
receivable loss rates are affected by macroeconomic conditions, including the level of gross
domestic product (“GDP”) growth, the level of commercial capital equipment investment,
unemployment rates, and the credit quality of the borrower.
Generally,
expected credit losses as a result of residual value risk on equipment under lease are not
considered to be significant primarily because of the existence of a secondary market with respect
to the equipment. The Company’s lease agreements also generally define applicable return
conditions and remedies for non-compliance to ensure that the leased equipment will be in good
operating condition upon return. Model changes and updates, as well as market strength and product
acceptance, are monitored and adjustments are made to residual values in accordance with the
significance of any such changes.
When an account is deemed to be uncollectible,
customer account principal and interest are charged off to the allowance for losses. While the
Company does not generally place financing receivables on non-accrual status during the delinquency
period, accrued interest is included in the allowance for loss calculation and, therefore, the
Company is adequately reserved in the event of charge off. Recoveries on receivables previously
charged off as uncollectible are recorded to the allowance for financing receivables losses. The
expense associated with the allowance for financing receivables losses is recognized as cost of net
revenue.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Asset Securitization
— The Company transfers certain U.S. and
European customer loan and lease payments and associated equipment to Special Purpose Entities
(“SPEs”) that meet the definition of a Variable Interest Entity (“VIE”) and
are consolidated into the Consolidated Financial Statements. These SPEs are bankruptcy-remote legal
entities with separate assets and liabilities. The purpose of the SPEs is to facilitate the funding
of customer loan and lease payments and associated equipment in the capital markets. Some of these
SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue
asset-backed debt securities in the capital markets. The asset securitizations in the SPEs are
accounted for as secured borrowings.
Inventories
—
The Company generally records inventory on the Consolidated Statements of Financial Position when
legal title and risk of loss has passed to the Company for items that are held for sale in the
ordinary course of business, that are in process of production for sale, or that will be consumed in
the production of goods or services that will be held for sale. Inventories are stated at the lower
of cost or net realizable value, with cost being determined on a first-in, first-out basis.
Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for
estimated excess, obsolescence, or impaired balances. At the point of the loss recognition, a new,
lower cost basis for that inventory is established, and subsequent changes in facts and
circumstances do not result in the restoration or increase in the newly established cost
basis.
Property,
Plant, and Equipment —
Property, plant, and equipment are carried at depreciated cost. Depreciation is determined using the
straight-line method over the shorter of the estimated useful lives of the assets or the lease term,
as applicable. The estimated useful lives of the
Company’s property, plant, and equipment are generally as follows:
|
|
|
|
|
|
|
Estimated
Useful Life |
|
Computer
equipment |
3-5 years
|
|
Equipment
under operating leases |
Term
of underlying lease contract |
|
Buildings
and building improvements |
10-30 years or term of underlying land lease
|
|
Leasehold
improvements |
5 years or contract term
|
|
Machinery
and equipment |
3-5 years
|
Gains
or losses related to retirements or dispositions of fixed assets are recognized in the period during
which the retirement or disposition occurs.
Capitalized
Software Development Costs —
Software development costs related to the development of new product offerings are capitalized
subsequent to the establishment of technological feasibility, which is demonstrated by the
completion of a detailed program design or working model, if no program design is completed. The
Company amortizes capitalized costs on a straight-line basis over the estimated useful lives of the
products, which generally range from two to four
years.
As
of February 3, 2023 and January 28, 2022, capitalized software development costs were $
673 million and $672 million, respectively, and
are included in other non-current assets, net in the accompanying Consolidated Statements of Financial
Position. Amortization expense for the fiscal years ended February 3, 2023, January 28, 2022, and
January 29, 2021 was $317 million, $263 million, and $315 million, respectively.
The Company capitalizes certain
internal and external costs to acquire or create internal use software which are incurred subsequent
to the completion of the preliminary project stage. Development costs are generally amortized on a
straight-line basis over five
years. Costs associated with maintenance and minor enhancements to the features
and functionality of the Company’s internal use software are expensed as incurred.
Impairment
of Long-Lived Assets —
The Company reviews long-lived assets for impairment when events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. The Company assesses the
recoverability of the assets based on the undiscounted future cash flows expected from the use and
eventual disposition of the asset. If the carrying amount of the asset is determined not to be
recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted
market values, discounted cash flows, or external appraisals, as applicable. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Intangible
Assets Including Goodwill —
Identifiable intangible assets with finite lives are amortized over their estimated useful lives.
Indefinite-lived intangible assets are not amortized. Definite-lived intangible assets are reviewed
for impairment when
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
events and circumstances indicate the asset may
be impaired. Goodwill and indefinite-lived intangible assets are tested for impairment annually
during the third fiscal quarter and whenever events or circumstances indicate that an impairment may
have occurred.
Foreign
Currency Translation —
The majority of the Company’s international sales are made by international subsidiaries, some
of which have the U.S. Dollar as their functional currency. The Company’s subsidiaries that do
not use the U.S. Dollar as their functional currency translate assets and liabilities at current
exchange rates in effect at the balance sheet date. Revenue and expenses from these international
subsidiaries are translated using either the monthly average exchange rates in effect for the period
in which the activity was recognized or the specific daily exchange rate associated with the date
the transactions actually occur. Foreign currency translation adjustments are included as a
component of accumulated other comprehensive income (loss) (“AOCI”) in
stockholders’ equity (deficit).
Local
currency transactions of international subsidiaries that have the U.S. Dollar as their functional
currency are remeasured into U.S. Dollars using the current rates of exchange for monetary assets
and liabilities and historical rates of exchange for nonmonetary assets and liabilities. Gains and
losses from remeasurement of monetary assets and liabilities are included in interest and other, net
on the Consolidated Statements of Income. See Note 20 of the Notes to the Consolidated Financial
Statements for amounts recognized from remeasurement during the periods presented.
Hedging
Instruments —
The Company uses derivative financial instruments, primarily forward contracts, options, and swaps,
to hedge certain foreign currency and interest rate exposures. The relationships between hedging
instruments and hedged items, as well as the risk management objectives and strategies for
undertaking hedge transactions, are formally documented. The Company does not use derivatives for
speculative purposes. All derivative instruments are recognized as either assets or liabilities in
the Consolidated Statements of Financial Position and are measured at fair value. The
Company’s hedge portfolio includes non-designated derivatives and derivatives designated as
cash flow hedges and, from time to time, fair value hedges.
For
derivative instruments designated as a cash flow hedge, the Company assesses hedge effectiveness at
the onset of the hedge, then performs qualitative assessments at regular intervals throughout the
life of the derivative. The gain or loss on the hedge is recorded in AOCI, as a separate component
of stockholders’ equity (deficit), and reclassified into earnings in the period during which
the hedged transaction is recognized in earnings. For derivatives that are designated as a fair
value hedge, the Company evaluates the effectiveness of the qualifying fair value hedge using the
shortcut method of accounting under which hedges are assumed to be perfectly effective. The change
in fair value of the hedge exactly offsets the fair value of the hedged item and there is no net
impact recognized in earnings from the fair value of the derivative. For derivatives that are not
designated as hedges or do not qualify for hedge accounting treatment, the Company recognizes the
change in the instrument’s fair value in earnings as a component of interest and other,
net.
Cash flows from derivative instruments are
presented in the same category on the Consolidated Statements of Cash Flows as the cash flows from
the underlying hedged items. See Note 9 of the Notes to the Consolidated Financial
Statements for a description of the Company’s derivative financial instrument activities.
Revenue
Recognition
— The Company sells a wide portfolio of products and services to its customers. The
Company’s agreements have varying requirements depending on the goods and services being sold,
the rights and obligations conveyed, and the legal jurisdiction of the arrangement.
Revenue
is recognized for these arrangements based on the following five steps:
(1) Identify
the contract with a customer.
The Company evaluates facts and circumstances regarding sales transactions in order to identify
contracts with its customers. An agreement must meet all of the following criteria to qualify as a
contract eligible for revenue recognition under the model: (i) the contract must be approved by all
parties who are committed to perform their respective obligations; (ii) each party’s rights
regarding the goods and services to be transferred to the customer can be identified; (iii) the
payment terms for the goods and services can be identified; (iv) the customer has the ability and
intent to pay and it is probable that the Company will collect substantially all of the
consideration to which it will be entitled; and (v) the contract must have commercial substance.
Judgment is used in determining the customer’s ability and intent to pay, which is based upon
various factors, including the customer’s historical payment experience or customer credit and
financial information.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(2) Identify
the performance obligations in the contract. The
Company’s contracts with customers often include the promise to transfer multiple goods and
services to the customer. Distinct promises within a contract are referred to as “performance
obligations” and are accounted for as separate units of account. The Company assesses whether
each promised good or service is distinct for the purpose of identifying the performance obligations
in the contract. This assessment involves subjective determinations and requires management to make
judgments about the individual promised goods or services and whether such goods or services are
separable from the other aspects of the contractual relationship. Promised goods and services are
considered distinct provided that: (i) the customer can benefit from the good or service either
on its own or together with other resources that are readily available to the customer (that is, the
good or service is capable of being distinct); and (ii) the Company’s promise to transfer the
good or service to the customer is separately identifiable from other promises in the contract (that
is, the promise to transfer the good or service is distinct within the context of the contract). The
Company’s performance obligations include various distinct goods and services such as
hardware, software licenses, support and maintenance agreements, and other service offerings and
solutions. Promised goods and services are explicitly identified in the Company’s contracts
and may be sold on a standalone basis or bundled as part of a combined solution. In certain hardware
solutions, the hardware is highly interdependent on, and interrelated with, the embedded software.
In these offerings, the hardware and software licenses are accounted for as a single performance
obligation.
(3) Determine
the transaction price.
The transaction price reflects the amount of consideration to which the Company expects to be
entitled in exchange for transferring goods or services to the customer. If the consideration
promised in a contract includes a variable amount, the Company estimates the amount to which it
expects to be entitled using either the expected value or most likely amount method. Generally,
volume discounts, rebates, and sales returns reduce the transaction price. In determining the
transaction price, the Company only includes amounts that are not subject to significant future
reversal.
(4) Allocate
the transaction price to performance obligations in the contract. When
a contract includes multiple performance obligations, the transaction price is allocated to each
performance obligation in an amount that depicts the consideration to which the Company expects to
be entitled in exchange for transferring the promised goods or services. For contracts with multiple
performance obligations, the transaction price is allocated in proportion to the standalone selling
price (“SSP”) of each performance obligation.
The
best evidence of SSP is the observable price of a good or service when the Company sells that good
or service separately in similar circumstances to similar customers. If a directly observable price
is available, the Company will utilize that price for the SSP. If a directly observable price is not
available, the SSP must be estimated. The Company estimates SSP by considering multiple factors,
including, but not limited to, pricing practices, internal costs, and profit objectives as well as
overall market conditions, which include geographic or regional specific factors, competitive
positioning, and competitor actions.
(5) Recognize
revenue when (or as) the performance obligation is satisfied. Revenue
is recognized when obligations under the terms of the contract with the Company’s customer are
satisfied. Revenue is recognized either over time or at a point in time, depending on when the
underlying products or services are transferred to the customer. Revenue is recognized at a point in
time for products upon transfer of control. Revenue is recognized over time for support and
deployment services, software support, Software-as-a-Service (“SaaS”), and
Infrastructure-as-a-Service (“IaaS”). Revenue is recognized either over time or at a
point in time for professional services and training depending on the nature of the offering to the
customer.
The
Company reports revenue net of any revenue-based taxes assessed by governmental authorities that are
imposed on and concurrently with specific revenue-producing transactions.
The
Company has elected the following practical expedients:
•The
Company does not account for significant financing components if the period between revenue
recognition and when the customer pays for the product or service will be one year or less.
•The
Company recognizes revenue equal to the amount it has a right to invoice when the amount corresponds
directly with the value to the customer of the Company’s performance to date.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
•The
Company does not account for shipping and handling activities as a separate performance obligation,
but rather as an activity performed to transfer the promised good.
The
following summarizes the nature of revenue recognized and the manner in which the Company accounts
for sales transactions.
Products
Product
revenue consists of revenue from sales of hardware products, including notebooks and desktop PCs,
servers, storage hardware, and other hardware-related devices, as well as revenue from software
license sales, including non-essential software applications and third-party software licenses.
Revenue
from sales of hardware products is recognized when control has transferred to the customer, which
typically occurs when the hardware has been shipped to the customer, risk of loss has transferred to
the customer, the Company has a present right to payment, and customer acceptance has been
satisfied. Customer acceptance is satisfied if acceptance is obtained from the customer, if all
acceptance provisions lapse, or if the Company has evidence that all acceptance provisions will be,
or have been, satisfied. Revenue from software license sales is generally recognized when control
has transferred to the customer, which is typically upon shipment, electronic delivery, or when the
software is available for download by the customer. For certain software arrangements in which the
customer is granted a right to additional unspecified future software licenses, the Company’s
promise to the customer is considered a stand-ready obligation in which the transfer of control and
revenue recognition will occur over time.
Services
Services
revenue consists of revenue from sales of support services, including hardware support that extends
beyond the Company’s standard warranties, software maintenance, and installation; professional
services; training; SaaS; and IaaS. Revenue associated with undelivered performance obligations is
deferred and recognized when or as control is transferred to the customer. Revenue from fixed-price
support or maintenance contracts sold for both hardware and software is recognized on a
straight-line basis over the period of performance because the Company is required to provide
services at any given time. Other services revenue is recognized when the Company performs the
services and the customer receives and consumes the benefits.
Other
Revenue
from leasing arrangements is not subject to the revenue standard for contracts with customers and
remains separately accounted for under lease accounting guidance. The Company records operating
lease rental revenue as product revenue on a straight-line basis over the lease term. The Company
records revenue under sales-type leases as product revenue in an amount equal to the present value
of minimum lease payments at the inception of the lease. Sales-type leases also produce financing
income, which is included in product net revenue in the Consolidated Statements of Income and is
recognized at effective rates of return over the lease term. The Company also offers qualified
customers fixed-term loans and revolving credit lines for the purchase of products and services
offered by the Company. Financing income attributable to these loans is recognized in product net
revenue on an accrual basis.
Principal
versus Agent
— For transactions that involve a third party, the Company evaluates whether it is acting as
the principal or the agent in the transaction. This determination requires significant judgement and
impacts the amount and timing of revenue recognized. If the Company determines that it controls a
good or service before it is transferred to the customer, the Company is acting as the principal and
recognizes revenue at the gross amount of consideration it is entitled to from the customer.
Indicators that the Company controls a good or service before transferring to a customer include,
but are not limited to, the Company being the primary obligor to the customer, establishing its own
pricing, and having inventory and credit risks. Conversely, if the Company determines that it does
not control the good or service before it is transferred to the customer, the Company is acting as
an agent in the transaction. As an agent, the Company is arranging for the good or service to be
provided by another party and recognizes revenue at the net amount of consideration retained.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Disaggregation
of Revenue
— The Company’s revenue is presented on a disaggregated basis on the Consolidated
Statements of Income and in Note 19 of the Notes to the Consolidated Financial Statements based on
an evaluation of disclosures outside of the financial statements, information regularly reviewed by
the chief operating decision maker for evaluating the financial performance of operating segments,
and other information that is used to evaluate the Company’s financial performance or make
resource allocations. This information includes revenue from products and services, revenue from
reportable segments, and revenue by major product categories within the segments.
Contract
Assets —
Contract assets are rights to consideration in exchange for goods or services that the Company has
transferred to a customer when such a right is conditional on something other than the passage of
time. Such amounts have been insignificant to date.
Contract
Liabilities —
Contract liabilities primarily consist of deferred revenue. Deferred revenue is recorded when the
Company has invoiced or payments have been received for undelivered products or services, or in
situations where revenue recognition criteria have not been met. Deferred revenue primarily includes
amounts received in advance for extended warranty services and software maintenance. Revenue is
recognized on these items when the revenue recognition criteria are met, generally resulting in
ratable recognition over the contract term. The Company also has deferred revenue related to
undelivered hardware and professional services, consisting of installations and consulting
engagements, which are recognized when the Company’s performance obligations under the
contract are completed. See Note 11 of the Notes to the Consolidated Financial Statements for
additional information about deferred revenue.
Deferred
Costs —
Deferred costs primarily consist of
costs
incurred to fulfill revenue-generating contracts mainly associated with VMware Resale discussed in
Note 21 of the Notes to the Consolidated Financial Statements and third-party software support and
maintenance. The Company defers these charges
in
line with the deferred revenue associated with the contract to obtain the appropriate expense
recognition timing. These costs are typically amortized on a straight-line basis over the life of
the contract or the average contract
duration.
Costs
to Obtain a Contract —
The
Company capitalizes incremental direct costs to obtain a contract, primarily sales commissions and
employer taxes related to commission payments, if the costs are deemed to be recoverable. The
Company has elected, as a practical expedient, to expense as incurred costs to obtain a contract
equal to or less than one year in duration. Capitalized costs are deferred and amortized over the
period of contract performance or the estimated life of the customer relationship, if renewals are
expected, and are typically amortized over an average period of three to
five years. Amortization expense is recognized on a straight-line basis and
included in selling, general, and administrative expenses in the Consolidated Statements of Income.
The
Company periodically reviews these deferred costs to determine whether events or changes in
circumstances have occurred that could impact the carrying value or period of benefit of the
deferred sales commissions. There were no material impairment losses for deferred costs to obtain a
contract during the fiscal years ended February 3, 2023, January 28, 2022, and
January 29, 2021.
Deferred
costs to obtain a contract as of February 3, 2023 and January 28, 2022 were $726
million and $734
million, respectively. Deferred costs to obtain a contract are classified as current
assets and other non-current assets on the Consolidated Statements of Financial Position, based on when
the expense is expected to be recognized. Amortization of costs to obtain a contract during the fiscal
years ended February 3, 2023, January 28, 2022, and January 29, 2021 was $390 million, $380 million, and $385 million, respectively.
Standard
Warranty Liabilities —
The Company records warranty liabilities for estimated costs of fulfilling its obligations under
standard limited hardware and software warranties at the time of sale. The liabilities for standard
warranties are included in accrued and other current and other non-current liabilities in the
Consolidated Statements of Financial Position. The specific warranty terms and conditions vary
depending upon the product sold and the country in which the Company does business, but generally
includes technical support, parts, and labor over a period ranging from one to three years
. Factors that affect the Company’s warranty liabilities include the number of
installed units currently under warranty, historical and anticipated rates of warranty claims on
those units, and cost per claim to satisfy the Company’s warranty obligation. The anticipated
rate of warranty claims is the primary factor impacting the estimated warranty obligation. The other
factors are less significant due to the fact that the average remaining aggregate warranty period of
the covered installed base is approximately 18 months, repair parts are generally already in stock or available
at pre-determined prices, and labor rates are generally arranged at
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
preestablished amounts with service providers.
Warranty claims are relatively predictable based on historical experience of failure rates. If
actual results differ from the estimates, the Company revises its estimated warranty liability. Each
quarter, the Company reevaluates its estimates to assess the adequacy of its recorded warranty
liabilities and adjusts the amounts as necessary.
Vendor
Rebates —
The Company may receive consideration from vendors in the normal course of business. Certain of
these funds are rebates of purchase price paid and others are related to reimbursement of costs
incurred by the Company to sell the vendor’s products. The Company recognizes a reduction of
cost of goods sold if the funds are determined to be a reduction of the price of the vendor’s
products. If the consideration is a reimbursement of costs incurred by the Company to sell or
develop the vendor’s products, then the consideration is classified as a reduction of such
costs, most often operating expenses, in the Consolidated Statements of Income. In order to be
recognized as a reduction of operating expenses, the reimbursement must be for a specific,
incremental, and identifiable cost incurred by the Company in selling the vendor’s products or
services.
Loss
Contingencies —
The Company is subject to the possibility of various losses arising in the ordinary course of
business. The Company considers the likelihood of loss or impairment of an asset or the incurrence
of a liability, as well as the Company’s ability to reasonably estimate the amount of loss, in
determining loss contingencies. An estimated loss contingency is accrued when it is probable that an
asset has been impaired or a liability has been incurred and the amount of loss can be reasonably
estimated. The Company regularly evaluates current information available to determine whether such
accruals should be adjusted and whether new accruals are required.
Shipping
Costs —
The Company’s shipping and handling costs are included in cost of net revenue in the
Consolidated Statements of Income.
Selling,
General, and Administrative —
Selling expenses include items such as sales salaries and commissions, marketing and advertising
costs, and contractor services. Advertising costs are expensed as incurred in selling, general, and
administrative expenses in the Consolidated Statements of Income. For the fiscal years ended
February 3, 2023, January 28, 2022, and January 29, 2021, advertising expenses were $1.1
billion, $1.3
billion, and $1.0
billion, respectively. General and administrative expenses include items for
the Company’s administrative functions, such as finance, legal, human resources, and
information technology support. These functions include costs for items such as salaries and
benefits and other personnel-related costs, maintenance and supplies, outside services, intangible
asset amortization, and depreciation expense.
Research
and Development —
Research and development (“R&D”) costs are expensed as incurred. As noted in
Capitalized Software Development Costs in this Note, qualifying software development costs are
capitalized and amortized over time. R&D costs include salaries and benefits and other
personnel-related costs associated with product development. Also included in R&D expenses are
infrastructure costs, which consist of equipment and material costs, facilities-related costs, and
depreciation expense.
Income
Taxes —
Deferred tax assets and liabilities are recorded based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The Company calculates a provision for income taxes
using the asset and liability method, under which deferred tax assets and liabilities are recognized
by identifying the temporary differences arising from the different treatment of items for tax and
accounting purposes. The Company accounts for the tax impact of including Global Intangible
Low-Taxed Income (GILTI) in U.S. taxable income as a period cost. The Company provides valuation
allowances for deferred tax assets, where appropriate. In assessing the need for a valuation
allowance, the Company considers all available evidence for each jurisdiction, including past
operating results, estimates of future taxable income, and the feasibility of ongoing tax planning
strategies. In the event the Company determines that all or part of the net deferred tax assets are
not realizable in the future, the Company will make an adjustment to the valuation allowance that
will be charged to earnings in the period in which such a determination is made.
The
accounting guidance for uncertainties in income tax prescribes a comprehensive model for the
financial statement recognition, measurement, presentation, and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns. The Company recognizes a tax benefit
from an uncertain tax position in the financial statements only when it is more likely than not that
the position will be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits and a consideration of the relevant taxing
authority’s administrative practices and precedents.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock-Based
Compensation —
The Company measures stock-based compensation expense for all share-based awards granted based on
the estimated fair value of those awards at grant date. To estimate the fair value of
performance-based awards containing a market condition, the Company uses the Monte Carlo valuation
model. The fair value of other share-based awards is generally based on the closing price of the
Class C Common Stock as reported on the New York Stock Exchange (“NYSE”) on the date of
grant.
The compensation cost of service-based stock
options, restricted stock, and restricted stock units is recognized net of any estimated forfeitures
on a straight-line basis over the employee requisite service period. Compensation cost for
performance-based awards is recognized on a graded accelerated basis net of estimated forfeitures
over the requisite service period. Forfeiture rates are estimated at grant date based on historical
experience and adjusted in subsequent periods for differences in actual forfeitures from those
estimates.
Recently
Issued Accounting Pronouncements
Accounting
for Contract Assets and Contract Liabilities from Contracts with Customers — In
October 2021, the Financial Accounting Standards Board (“FASB”) issued guidance which
requires companies to apply Topic 606, Revenue from Contracts with Customers, to recognize and
measure contract assets and contract liabilities from contracts with customers acquired in a
business combination. Public entities must adopt the new guidance for fiscal years beginning after
December 15, 2022 and interim periods within those fiscal years, with early adoption permitted.
Adoption of the guidance is not expected to have a material impact on the Company’s financial
results.
Reference Rate Reform
— In March 2020, the FASB issued guidance
which provides temporary optional expedients and exceptions to GAAP guidance on contract
modifications and certain hedging relationships to ease the financial reporting burdens related to
the expected market transition from the London Interbank Offered Rate to alternative reference
rates. The Company may elect to apply the amendments prospectively through December 31, 2024.
Adoption of the new guidance is not expected to have a material impact on the Company’s
financial results.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
3 — DISCONTINUED OPERATIONS
VMware
Spin-Off —
As disclosed in Note 1 of the Notes to the Consolidated Financial Statements, on November 1, 2021, the
Company completed its spin-off of VMware by means of a special stock dividend of 30,678,605
shares of Class A common stock and 307,221,836
shares of Class B common stock of VMware to Dell Technologies stockholders of record
as of October 29, 2021.
Prior
to receipt of the VMware common stock by the Company’s stockholders, each share of VMware Class B
common stock automatically converted into one
share of VMware Class A common stock. As a result of these transactions, each holder
of record of shares of Dell Technologies common stock as of the distribution record date received
approximately 0.440626 of a
share of VMware Class A common stock for each share of Dell Technologies common stock held as of such
date, based on shares outstanding as of the completion of the VMware Spin-off. Following completion of
the transaction, the pre-transaction stockholders of Dell Technologies owned shares in two separate
public companies, consisting of (1) VMware, which continues to own the businesses of VMware, Inc. and
its subsidiaries, and (2) Dell Technologies, which continues to own Dell Technologies’ other
businesses and subsidiaries. After the separation, Dell Technologies does not beneficially own any
shares of VMware common stock.
VMware
paid a cash dividend, pro rata, to each of the holders of VMware common stock in an aggregate amount
equal to $11.5
billion, of which Dell Technologies received $9.3
billion. Following the payment by VMware to its stockholders, the separation of
VMware from Dell Technologies occurred, including the termination or settlement of certain intercompany
accounts and intercompany contracts. Dell Technologies used the net proceeds from its pro rata share of
the cash dividend to repay a portion of its outstanding debt.
Dell
Technologies determined that the VMware Spin-off, and related distributions, qualified as tax-free for
U.S. federal income tax purposes, which required significant judgment by management. In making these
determinations, Dell Technologies applied U.S. federal tax law to relevant facts and circumstances and
obtained a favorable private letter ruling from the Internal Revenue Service, a tax opinion, and other
external tax advice related to the concluded tax treatment. If the completed transactions were to fail
to qualify for tax-free treatment for U.S. federal income tax purposes, the Company could be subject to
significant liabilities, which could have material adverse impacts on the Company’s business,
financial condition, results of operations and cash flows in future reporting periods.
In
connection with and upon completion of the VMware Spin-off, Dell Technologies and VMware entered into
various agreements that provide a framework for the relationship between the companies after the
transaction, including, among others, a commercial framework agreement, a tax matters agreement, and a
transition services agreement.
The
CFA referred to in Note 1 to the Notes to the Consolidated Financial Statements provides a framework
under which the Company and VMware will continue their commercial relationship after the transaction,
particularly with respect to projects mutually agreed by the parties as having the potential to
accelerate the growth of an industry, product, service, or platform that may provide one or both
companies with a strategic market opportunity. The CFA has an initial term of five
years, with automatic one-year
renewals occurring annually thereafter, subject to certain terms and conditions.
Pursuant
to the CFA, Dell Technologies continues to act as a distributor of VMware’s standalone products
and services and purchases such products and services for resale to end-user customers. Dell
Technologies also continues to integrate VMware’s products and services with Dell
Technologies’ offerings and sell them to end users. Cash flows between Dell Technologies and
VMware primarily relate to such transactions. The Company has determined that it is generally acting as
principal in these arrangements. The results of such operations are classified as continuing operations
within the Company’s Consolidated Statements of Income. See Note 21 of the Notes to the
Consolidated Financial Statements for additional information regarding transactions between Dell
Technologies and VMware.
In
accordance with applicable accounting guidance, the results of VMware, excluding Dell
Technologies’ resale of VMware offerings, are presented as discontinued operations in the
Consolidated Statements of Income and, as such, have been excluded from both continuing operations and
segment results for the fiscal years ended January 28, 2022 and January 29, 2021. The
Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing
operations and discontinued operations.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
tax matters agreement between the Company and VMware governs the respective rights, responsibilities,
and obligations of Dell Technologies and VMware with respect to tax liabilities (including taxes, if
any, incurred as a result of any failure of the VMware Spin-off to qualify for tax-free treatment for
U.S. federal income tax purposes) and benefits, tax attributes, the preparation and filing of tax
returns, the control of audits and other tax proceedings, cooperation, and other matters regarding
tax.
The
transition services agreement between the Company and VMware governed the various administrative
services which the Company provided to VMware on an interim transitional basis. Transition services were
fulfilled and concluded during the fiscal year ended February 3, 2023.
The
following table presents key components of “Income from discontinued operations, net of income
taxes” for the fiscal years ended January 28, 2022 and January 29, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Net
revenue |
|
|
|
$
|
5,798
|
|
|
$
|
7,554
|
|
| Cost
of net revenue |
|
|
|
(
1,632) |
|
|
(
1,723) |
|
| Operating
expenses |
|
|
|
6,384
|
|
|
7,818
|
|
| Interest
and other, net |
|
|
|
232
|
|
|
135
|
|
| Income
from discontinued operations before income taxes |
|
|
|
814
|
|
|
1,324
|
|
| Income
tax expense |
|
|
|
49
|
|
|
64
|
|
| Income
from discontinued operations, net of income taxes |
|
|
|
$
|
765
|
|
|
$
|
1,260
|
|
____________________
The
table above reflects the offsetting effects of historical intercompany transactions which are presented
on a gross basis within continuing operations on the Consolidated Statements of Income.
The
following table presents significant cash flow items from discontinued operations for the fiscal
years ended January 28, 2022 and January 29, 2021 included within the Consolidated
Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
(in
millions) |
| Depreciation
and amortization |
|
|
|
$
|
1,004
|
|
|
$
|
1,523
|
|
| Capital
expenditures |
|
|
|
$
|
263
|
|
|
$
|
329
|
|
| Stock-based
compensation expense |
|
|
|
$
|
814
|
|
|
$
|
1,122
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
4 — FAIR VALUE MEASUREMENTS
The
following table presents the Company’s hierarchy for its assets and liabilities measured at
fair value on a recurring basis as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total
|
|
|
Quoted
Prices in Active Markets for Identical Assets |
|
Significant
Other Observable Inputs |
|
Significant
Unobservable Inputs |
|
|
|
Quoted
Prices in Active Markets for Identical Assets |
|
Significant
Other Observable Inputs |
|
Significant
Unobservable Inputs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds |
$
|
4,301
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,301
|
|
|
$
|
3,737
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity and other securities |
33
|
|
|
—
|
|
|
—
|
|
|
33
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
86
|
|
|
Derivative
instruments |
—
|
|
|
295
|
|
|
—
|
|
|
295
|
|
|
—
|
|
|
253
|
|
|
—
|
|
|
253
|
|
|
Total
assets |
$
|
4,334
|
|
|
$
|
295
|
|
|
$
|
—
|
|
|
$
|
4,629
|
|
|
$
|
3,823
|
|
|
$
|
253
|
|
|
$
|
—
|
|
|
$
|
4,076
|
|
| Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments |
$
|
—
|
|
|
$
|
460
|
|
|
$
|
—
|
|
|
$
|
460
|
|
|
$
|
—
|
|
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
138
|
|
|
Total
liabilities |
$
|
—
|
|
|
$
|
460
|
|
|
$
|
—
|
|
|
$
|
460
|
|
|
$
|
—
|
|
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
138
|
|
The
following section describes the valuation methodologies the Company uses to measure financial
instruments at fair value:
Money Market Funds
— The Company’s investment in money
market funds that are classified as cash equivalents hold underlying investments with a weighted
average maturity of 90 days or less and are recognized at fair value. The valuations of these
securities are based on quoted prices in active markets for identical assets, when available, or
pricing models whereby all significant inputs are observable or can be derived from or corroborated
by observable market data. The Company reviews security pricing and assesses liquidity on a
quarterly basis. As of February 3, 2023, the Company’s portfolio had no material exposure to
money market funds with a fluctuating net asset value.
Marketable
Equity and Other Securities —
The majority of the Company’s investments in equity and other securities that are measured at
fair value on a recurring basis consist of strategic investments in publicly-traded companies. The
valuation of these securities is based on quoted prices in active markets.
Derivative
Instruments
— The Company’s derivative financial instruments consist primarily of foreign currency
forward and purchased option contracts and interest rate swaps. The fair value of the portfolio is
determined using valuation models based on market observable inputs, including interest rate curves,
forward and spot prices for currencies, and implied volatilities. Credit risk is also factored into
the fair value calculation of the Company’s derivative financial instrument portfolio. See
Note 9 of the Notes to the Consolidated Financial Statements for a description of the
Company’s derivative financial instrument activities.
Deferred Compensation Plans
—The Company offers deferred compensation
plans for eligible employees, which allow participants to defer a portion of their compensation.
Assets were the same as liabilities associated with the plans at approximately $
179 million and $
192 million as of February 3, 2023 and January 28, 2022,
respectively, and are included in other assets and other liabilities on the Consolidated Statements
of Financial Position. The net impact to the Consolidated Statements of Income is not material since
changes in the fair value of the assets substantially offset changes in the fair value of the
liabilities. As such, assets and liabilities associated with these plans have not been included in
the recurring fair value table above.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
— Certain assets are measured at fair value on a nonrecurring basis and therefore are not
included in the recurring fair value table above. These assets consist primarily of non-financial
assets such as goodwill and intangible assets. See Note 10 of the Notes to the Consolidated
Financial Statements for additional information about goodwill and intangible assets.
As
of February 3, 2023 and January 28, 2022, the Company held strategic investments in
non-marketable equity and other securities of $1.3 billion and $1.4 billion, respectively. As
these investments represent early-stage companies without readily determinable fair values, they are not
included in the recurring fair value table above. See Note 5 of the Notes to the Consolidated Financial
Statements for additional information about our strategic investments.
Carrying
Value and Estimated Fair Value of Outstanding Debt —
The following table presents the carrying value and estimated fair value of the Company’s
outstanding debt as described in Note 8 of the Notes to the Consolidated Financial Statements,
including the current portion, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
Carrying
Value |
|
Fair
Value |
|
Carrying
Value |
|
Fair
Value |
|
|
|
|
|
|
|
|
|
(in
billions) |
|
|
|
|
|
|
|
|
| Senior
Notes |
$
|
18.1
|
|
|
$
|
18.2
|
|
|
$
|
16.1
|
|
|
$
|
18.5
|
|
| Legacy
Notes and Debentures |
$
|
0.9
|
|
|
$
|
1.0
|
|
|
$
|
0.8
|
|
|
$
|
1.1
|
|
| DFS
Debt |
$
|
10.3
|
|
|
$
|
9.9
|
|
|
$
|
9.6
|
|
|
$
|
9.6
|
|
|
|
|
|
|
|
|
|
The
fair values of the outstanding debt shown in the table above were determined based on observable market
prices in a less active market or based on valuation methodologies using observable inputs and were
categorized as Level 2 in the fair value hierarchy.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
5 — INVESTMENTS
The
Company has strategic investments in equity and other securities as well as investments in fixed income
debt securities. All equity and other securities as well as long-term fixed income debt securities are
recorded as long-term investments in the Consolidated Statements of Financial Position. Short-term fixed
income debt securities are recorded as other current assets in the Consolidated Statements of Financial
Position.
As
of February 3, 2023 and January 28, 2022, total investments were $1.6
billion and $1.8 billion,
respectively.
Equity
and Other Securities
Equity
and other securities include strategic investments in marketable and non-marketable securities.
Investments in marketable securities are measured at fair value on a recurring basis. The Company has
elected to apply the measurement alternative for non-marketable securities. Under the alternative, the
Company measures investments without readily determinable fair values at cost, less impairment, adjusted
by observable price changes. The Company makes a separate election to use the alternative for each
eligible investment and is required to reassess at each reporting period whether an investment qualifies
for the alternative. In evaluating these investments for impairment or observable price changes, the
Company uses inputs including pre- and post-money valuations of recent financing events and the impact
of those events on its fully diluted ownership percentages, as well as other available information
regarding the issuer’s historical and forecasted performance.
Carrying
Value of Equity and Other Securities
The
following table presents the cost, cumulative unrealized gains, cumulative unrealized losses, and
carrying value of the Company's strategic investments in marketable and non-marketable equity
securities as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
Cost
|
|
Unrealized
Gain |
|
Unrealized
Loss |
|
Carrying
Value |
|
Cost
|
|
Unrealized
Gain |
|
Unrealized
Loss |
|
Carrying
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Marketable
|
$
|
56
|
|
|
$
|
17
|
|
|
$
|
(
40) |
|
|
$
|
33
|
|
|
$
|
126
|
|
|
$
|
79
|
|
|
$
|
(
119) |
|
|
$
|
86
|
|
|
Non-marketable
|
714
|
|
|
651
|
|
|
(
100) |
|
|
1,265
|
|
|
593
|
|
|
900
|
|
|
(
52) |
|
|
1,441
|
|
|
Total
equity and other securities |
$
|
770
|
|
|
$
|
668
|
|
|
$
|
(
140) |
|
|
$
|
1,298
|
|
|
$
|
719
|
|
|
$
|
979
|
|
|
$
|
(
171) |
|
|
$
|
1,527
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Gains
and Losses on Equity and Other Securities
The
following table presents unrealized gains and losses on marketable and non-marketable equity and
other securities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Marketable
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain |
|
|
|
|
|
|
|
$
|
57
|
|
|
$
|
45
|
|
|
$
|
288
|
|
|
Unrealized
loss |
|
|
|
|
|
|
|
(
47
) |
|
|
(
151
) |
|
|
(
45
) |
|
|
Net
unrealized gain (loss) |
|
|
|
|
|
|
|
10
|
|
|
(
106) |
|
|
243
|
|
|
Non-marketable
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain |
|
|
|
|
|
|
|
90
|
|
|
604
|
|
|
190
|
|
|
Unrealized
loss |
|
|
|
|
|
|
|
(
349
) |
|
|
(
43
) |
|
|
(
59
) |
|
|
Net
unrealized gain (loss) (a) (b) |
|
|
|
|
|
|
|
(
259) |
|
|
561
|
|
|
131
|
|
|
Net
unrealized gain (loss) on equity and other securities |
|
|
|
|
|
|
|
$
|
(
249) |
|
|
$
|
455
|
|
|
$
|
374
|
|
____________________
(a) For
the fiscal year ended February 3, 2023, net unrealized losses on non-marketable securities were
primarily attributable to the recognition of impairments on equity and other securities, which were
generally in line with extended public equity market declines. In evaluating these investments for
impairment, the Company used inputs including pre- and post-money valuations of recent financing
events and the impact of those events on its fully diluted ownership percentages, as well as other
available information regarding the issuer’s historical and forecasted performance.
(b) For the fiscal years ended January 28,
2022 and January 29, 2021, net unrealized gains on non-marketable securities were due to upward
adjustments for observable price changes offset by losses primarily attributable to downward
adjustments for observable price changes and impairments.
Fixed
Income Debt Securities
The
Company has fixed income debt securities carried at amortized cost which are held as collateral for
borrowings. The Company intends to hold the investments to maturity. As of the balance sheet dates
presented, the Company holds $98 million in fixed income
debt securities which will mature within one year and $220 million in fixed income
debt securities which will mature within two to five years.
The
following table summarizes the Company’s debt securities as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
Cost
|
|
Unrealized
Gains |
|
Unrealized
Loss |
|
Carrying
Value |
|
Cost
|
|
Unrealized
Gains |
|
Unrealized
Loss |
|
Carrying
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Fixed
income debt securities |
$
|
348
|
|
|
$
|
65
|
|
|
$
|
(
95) |
|
|
$
|
318
|
|
|
$
|
333
|
|
|
$
|
26
|
|
|
$
|
(
47) |
|
|
$
|
312
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
6 — FINANCIAL SERVICES
The
Company offers or arranges various financing options and alternative payment structures for its
customers globally. Alternative payment structures consist of various flexible consumption models,
including utility, subscription, and as-a-Service models.
Financing
options are offered primarily through Dell Financial Services and its affiliates (“DFS”).
The Company also arranges financing for some of its customers in various countries where DFS does not
currently operate as a captive enterprise. The key activities of DFS include originating, collecting,
and servicing customer financing arrangements primarily related to the purchase or use of Dell
Technologies products and services. In some cases, DFS also offers financing for the purchase of
third-party technology products that complement the Dell Technologies portfolio of products and
services. New financing originations were $9.7 billion, $8.5 billion, and $8.9 billion for the fiscal years ended February 3, 2023,
January 28, 2022, and January 29, 2021, respectively.
The
Company’s lease and loan arrangements with customers are aggregated primarily into the following
categories:
Revolving
loans
— Revolving loans offered under private label credit financing programs provide qualified
customers with a revolving credit line for the purchase of products and services offered by Dell
Technologies. These private label credit financing programs are referred to as Dell Preferred Account
(“DPA”) and Dell Business Credit (“DBC”). The DPA product is primarily offered
to individual consumer customers, and the DBC product is primarily offered to small and medium-sized
commercial customers. Revolving loans in the United States bear interest at a variable annual percentage
rate that is tied to the prime rate. Based on historical payment patterns, revolving loan transactions
are typically repaid within twelve months
on average. Due to the short-term nature of the revolving loan portfolio, the carrying
value of the portfolio approximates fair value.
Fixed-term
leases and loans —
The Company enters into financing arrangements with customers who seek lease financing for equipment.
DFS leases are generally classified as sales-type leases or operating leases. Leases with business
customers have fixed terms of generally two to four years
.
The
Company also offers fixed-term loans to qualified small businesses, large commercial accounts,
governmental organizations, educational entities, and certain individual consumer customers. These loans
are repaid in equal payments including interest and have defined terms of generally three to five years
. The fair value of the fixed-term loan portfolio is determined using market observable
inputs. The carrying value of these loans approximates fair value.
Flexible
consumption models, as defined above, enable the Company to offer its customers the option to pay over
time to provide them with financial flexibility to meet their changing technological requirements. Such
models may result in identification of embedded lease arrangements that lead to the recognition of
operating or sales-type leases.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Financing
Receivables
The
following table presents the components of the Company’s financing receivables segregated by
portfolio segment as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
Revolving
|
|
Fixed-term
|
|
Total
|
|
Revolving
|
|
Fixed-term
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Financing
receivables, net: |
|
|
|
|
|
|
|
|
|
|
|
| Customer
receivables, gross (a) |
$
|
685
|
|
|
$
|
10,293
|
|
|
$
|
10,978
|
|
|
$
|
750
|
|
|
$
|
9,833
|
|
|
$
|
10,583
|
|
|
Allowances
for losses |
(
88) |
|
|
(
113) |
|
|
(
201) |
|
|
(
102) |
|
|
(
87) |
|
|
(
189) |
|
|
Customer
receivables, net |
597
|
|
|
10,180
|
|
|
10,777
|
|
|
648
|
|
|
9,746
|
|
|
10,394
|
|
| Residual
interest |
—
|
|
|
142
|
|
|
142
|
|
|
—
|
|
|
217
|
|
|
217
|
|
|
Financing
receivables, net |
$
|
597
|
|
|
$
|
10,322
|
|
|
$
|
10,919
|
|
|
$
|
648
|
|
|
$
|
9,963
|
|
|
$
|
10,611
|
|
|
Short-term
|
$
|
597
|
|
|
$
|
4,684
|
|
|
$
|
5,281
|
|
|
$
|
648
|
|
|
$
|
4,441
|
|
|
$
|
5,089
|
|
|
Long-term
|
$
|
—
|
|
|
$
|
5,638
|
|
|
$
|
5,638
|
|
|
$
|
—
|
|
|
$
|
5,522
|
|
|
$
|
5,522
|
|
____________________
(a) Customer
receivables, gross include amounts due from customers under revolving loans, fixed-term loans,
fixed-term sales-type or direct financing leases, and accrued interest.
The
following table presents the changes in allowance for financing receivable losses for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
|
|
Fixed-term
|
|
Total
|
|
(in
millions) |
| Allowance
for financing receivable losses: |
|
|
|
|
|
| Balances
as of January 31, 2020 |
$
|
70
|
|
|
$
|
79
|
|
|
$
|
149
|
|
|
Adjustment
for adoption of accounting standard (Note 2) |
40
|
|
|
71
|
|
|
111
|
|
|
Charge-offs,
net of recoveries |
(
62) |
|
|
(
29) |
|
|
(
91) |
|
|
Provision
charged to income statement |
100
|
|
|
52
|
|
|
152
|
|
| Balances
as of January 29, 2021 |
148
|
|
|
173
|
|
|
321
|
|
|
Charge-offs,
net of recoveries |
(
43) |
|
|
(
29) |
|
|
(
72) |
|
|
Provision
charged to income statement |
(
3
) |
|
|
(
57
) |
|
|
(
60
) |
|
| Balances
as of January 28, 2022 |
102
|
|
|
87
|
|
|
189
|
|
|
Charge-offs,
net of recoveries |
(
52) |
|
|
(
8) |
|
|
(
60) |
|
|
Provision
charged to income statement |
38
|
|
|
34
|
|
|
72
|
|
| Balances
as of February 2, 2023 |
$
|
88
|
|
|
$
|
113
|
|
|
$
|
201
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Aging
The
following table presents the aging of the Company’s customer financing receivables, gross,
including accrued interest, segregated by class, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
Current
|
|
Past
Due 1 — 90 Days
|
|
Past
Due >90 Days |
|
Total
|
|
Current
|
|
Past
Due 1 — 90 Days
|
|
Past
Due >90 Days |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Revolving
— DPA |
$
|
457
|
|
|
$
|
34
|
|
|
$
|
17
|
|
|
$
|
508
|
|
|
$
|
520
|
|
|
$
|
40
|
|
|
$
|
11
|
|
|
$
|
571
|
|
| Revolving
— DBC |
154
|
|
|
19
|
|
|
4
|
|
|
177
|
|
|
158
|
|
|
18
|
|
|
3
|
|
|
179
|
|
| Fixed-term
— Consumer and Commercial |
9,309
|
|
|
927
|
|
|
57
|
|
|
10,293
|
|
|
9,444
|
|
|
345
|
|
|
44
|
|
|
9,833
|
|
|
Total
customer receivables, gross |
$
|
9,920
|
|
|
$
|
980
|
|
|
$
|
78
|
|
|
$
|
10,978
|
|
|
$
|
10,122
|
|
|
$
|
403
|
|
|
$
|
58
|
|
|
$
|
10,583
|
|
Aging
is likely to fluctuate as a result of the variability in volume of large transactions entered into over
the period, and the administrative processes that accompany those transactions. Aging is also impacted
by the timing of the Company’s fiscal period end date relative to calendar month-end customer
payment due dates. As a result of these factors, fluctuations in aging from period to period do
not necessarily indicate a material change in the collectibility of the portfolio. The increase in
past-due amounts as of February 3, 2023 is primarily attributable to the timing of the Company’s
fiscal period end date relative to calendar month-end customer payment due dates.
Fixed-term
consumer and commercial customer receivables are placed on non-accrual status if principal or interest
is past due and considered delinquent, or if there is concern about the collectibility of a specific
customer receivable. The receivables identified as doubtful for collectibility may be classified as
current for aging purposes. Aged revolving portfolio customer receivables identified as delinquent are
charged off.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Credit
Quality
The
following tables present customer receivables, gross, including accrued interest, by credit quality
indicator, segregated by class, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
Fixed-term
— Consumer and Commercial |
|
|
|
|
|
|
|
Fiscal
Year of Origination |
|
|
|
|
|
|
|
2023
|
|
2022
|
|
2021
|
|
2020
|
|
2019
|
|
Years
Prior |
|
Revolving
— DPA |
|
Revolving
— DBC |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Higher
|
$
|
3,210
|
|
|
$
|
1,805
|
|
|
$
|
914
|
|
|
$
|
343
|
|
|
$
|
37
|
|
|
$
|
1
|
|
|
$
|
123
|
|
|
$
|
44
|
|
|
$
|
6,477
|
|
| Mid
|
1,242
|
|
|
631
|
|
|
362
|
|
|
119
|
|
|
17
|
|
|
1
|
|
|
136
|
|
|
54
|
|
|
2,562
|
|
| Lower
|
1,017
|
|
|
364
|
|
|
157
|
|
|
65
|
|
|
7
|
|
|
1
|
|
|
249
|
|
|
79
|
|
|
1,939
|
|
|
Total
|
$
|
5,469
|
|
|
$
|
2,800
|
|
|
$
|
1,433
|
|
|
$
|
527
|
|
|
$
|
61
|
|
|
$
|
3
|
|
|
$
|
508
|
|
|
$
|
177
|
|
|
$
|
10,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
28, 2022 |
|
Fixed-term
— Consumer and Commercial |
|
|
|
|
|
|
|
Fiscal
Year of Origination |
|
|
|
|
|
|
|
2022
|
|
2021
|
|
2020
|
|
2019
|
|
2018
|
|
Years
Prior |
|
Revolving
— DPA |
|
Revolving
— DBC |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Higher
|
$
|
3,279
|
|
|
$
|
1,824
|
|
|
$
|
914
|
|
|
$
|
221
|
|
|
$
|
25
|
|
|
$
|
3
|
|
|
$
|
150
|
|
|
$
|
46
|
|
|
$
|
6,462
|
|
| Mid
|
1,071
|
|
|
751
|
|
|
329
|
|
|
94
|
|
|
17
|
|
|
—
|
|
|
166
|
|
|
57
|
|
|
2,485
|
|
| Lower
|
599
|
|
|
450
|
|
|
208
|
|
|
42
|
|
|
6
|
|
|
—
|
|
|
255
|
|
|
76
|
|
|
1,636
|
|
|
Total
|
$
|
4,949
|
|
|
$
|
3,025
|
|
|
$
|
1,451
|
|
|
$
|
357
|
|
|
$
|
48
|
|
|
$
|
3
|
|
|
$
|
571
|
|
|
$
|
179
|
|
|
$
|
10,583
|
|
The
categories shown in the tables above segregate customer receivables based on the relative degrees of
credit risk. The credit quality indicators for DPA revolving accounts are measured primarily as of each
quarter-end date, while all other indicators are generally updated on a periodic basis.
For
DPA revolving receivables shown in the table above, the Company makes credit decisions based on
proprietary scorecards, which include the customer’s credit history, payment history, credit
usage, and other credit agency-related elements. The higher quality category includes prime accounts
generally comparable to U.S. customer FICO scores of 720 or above. The mid category represents the
mid-tier accounts that are comparable to U.S. customer FICO scores from 660 to 719. The lower category
is generally sub-prime and represents accounts that are comparable to U.S. customer FICO scores below
660. For the DBC revolving receivables and fixed-term commercial receivables shown in the table above,
an internal grading system is utilized that assigns a credit level score based on a number of
considerations, including liquidity, operating performance, and industry outlook. The grading criteria
and classifications for the fixed-term products differ from those for the revolving products as loss
experience varies between these product and customer groups. The credit quality categories cannot be
compared between the different classes as loss experience varies substantially between the
classes.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Leases
Interest
income on sales-type lease receivables was $161 million, $246 million, and $270 million for the fiscal years ended February 3, 2023,
January 28, 2022, and January 29, 2021, respectively.
The
following table presents the net revenue, cost of net revenue, and gross margin recognized at the
commencement date of sales-type leases for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Net
revenue —
products
|
|
|
|
|
$
|
851
|
|
|
$
|
756
|
|
|
$
|
824
|
|
|
Cost
of net revenue —
products
|
|
|
|
|
727
|
|
|
583
|
|
|
578
|
|
|
Gross
margin —
products
|
|
|
|
|
$
|
124
|
|
|
$
|
173
|
|
|
$
|
246
|
|
The
following table presents the future maturity of the Company’s fixed-term customer leases and
associated financing payments, and reconciles the undiscounted cash flows to the customer
receivables, gross recognized on the Consolidated Statements of Financial Position as of the date
indicated:
|
|
|
|
|
|
|
February
3, 2023 |
|
(in
millions) |
| Fiscal
2024 |
$
|
2,514
|
|
| Fiscal
2025 |
1,690
|
|
| Fiscal
2026 |
1,144
|
|
| Fiscal
2027 |
482
|
|
| Fiscal
2028 and beyond |
112
|
|
|
Total
undiscounted cash flows |
5,942
|
|
| Fixed-term
loans |
5,109
|
|
| Revolving
loans |
685
|
|
| Less:
Unearned income |
(
758) |
|
|
Total
customer receivables, gross |
$
|
10,978
|
|
Operating
Leases
The
Company’s operating leases primarily consist of DFS captive fixed-term leases and contractually
committed embedded leases identified within flexible consumption arrangements.
The
following table presents the components of the Company’s operating lease portfolio included in
property, plant, and equipment, net as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
| Equipment
under operating lease, gross |
$
|
3,725
|
|
|
$
|
2,643
|
|
| Less:
Accumulated depreciation |
(
1,517)
|
|
|
(
935) |
|
|
Equipment
under operating lease, net |
$
|
2,208
|
|
|
$
|
1,708
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents operating lease income related to lease payments and depreciation expense
for the Company’s operating lease portfolio for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Income related to lease
payments |
|
|
|
|
$
|
1,091
|
|
|
$
|
717
|
|
|
$
|
452
|
|
| Depreciation
expense |
|
|
|
|
$
|
803
|
|
|
$
|
536
|
|
|
$
|
334
|
|
The
following table presents the future payments to be received by the Company as lessor in operating
lease contracts as of the date indicated:
|
|
|
|
|
|
|
February
3, 2023 |
|
(in
millions) |
| Fiscal
2024 |
$
|
1,088
|
|
| Fiscal
2025 |
721
|
|
| Fiscal
2026 |
375
|
|
| Fiscal
2027 |
90
|
|
| Fiscal
2028 and beyond |
32
|
|
|
Total
|
$
|
2,306
|
|
DFS
Debt
The
Company maintains programs that facilitate the funding of leases, loans, and other alternative payment
structures in the capital markets. The majority of DFS debt is
non-recourse to Dell Technologies and represents borrowings under securitization programs and
structured financing programs, for which the Company’s risk of loss is limited to transferred
loan and lease payments and associated equipment.
The
following table presents DFS debt as of the dates indicated and excludes the allocated portion of
the Company’s other borrowings, which represents the additional amount considered to fund the
DFS business:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
| DFS
debt |
(in
millions) |
| DFS
U.S. debt: |
|
|
|
|
Asset-based
financing and securitization facilities |
$
|
3,987
|
|
|
$
|
3,054
|
|
|
Fixed-term
securitization offerings |
2,679
|
|
|
3,011
|
|
|
Other
|
76
|
|
|
135
|
|
|
Total
DFS U.S. debt |
6,742
|
|
|
6,200
|
|
| DFS
international debt: |
|
|
|
|
Securitization
facility |
790
|
|
|
739
|
|
|
Other
borrowings |
871
|
|
|
785
|
|
|
Note
payable |
250
|
|
|
250
|
|
|
Dell
Bank senior unsecured eurobonds |
1,637
|
|
|
1,672
|
|
|
Total
DFS international debt |
3,548
|
|
|
3,446
|
|
|
Total
DFS debt |
$
|
10,290
|
|
|
$
|
9,646
|
|
|
Total
short-term DFS debt |
$
|
5,400
|
|
|
$
|
5,803
|
|
|
Total
long-term DFS debt |
$
|
4,890
|
|
|
$
|
3,843
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
DFS
U.S. Debt
Asset-Based
Financing and Securitization Facilities —
The
Company maintains separate asset-based financing facilities and a securitization facility in the United
States, which are revolving facilities for fixed-term leases and loans and for revolving loans,
respectively. This debt is collateralized solely by the U.S. loan and lease payments and associated
equipment in the facilities. The debt has a variable interest rate, and the duration of the debt is
based on the terms of the underlying loan and lease payment streams. As of February 3, 2023, the
total debt capacity related to the U.S. asset-based financing and securitization facilities was $
5.6 billion. The Company enters into interest swap agreements to
effectively convert a portion of this debt from a floating rate to a fixed rate. See Note 9 of the Notes
to the Consolidated Financial Statements for additional information about interest rate swaps.
The
Company’s U.S. securitization facility for revolving loans is effective through June 25,
2025. The Company’s
two U.S. asset-based financing facilities for fixed-term leases and loans are
effective through July 10, 2023 and June 21, 2024, respectively. The Company intends to extend
the facility currently effective through July 10, 2023.
The
asset-based financing and securitization facilities contain standard structural features related to the
performance of the funded receivables, which include defined credit losses, delinquencies, average
credit scores, and minimum collection requirements. In the event one or more of these criteria are not
met and the Company is unable to restructure the facility, no further funding of receivables will be
permitted and the timing of the Company’s expected cash flows from over-collateralization will be
delayed. As of February 3, 2023, these criteria were met.
Fixed-Term
Securitization Offerings —
The
Company periodically issues asset-backed debt securities under fixed-term securitization programs to
private investors. The asset-backed debt securities are collateralized solely by the U.S. fixed-term
leases and loans in the offerings, which are held by Special Purpose Entities (“SPEs”), as
discussed below. The interest rate on these securities is fixed and ranges from 0.33
% to 5.72
% per annum, and the duration of these securities is based on the terms of the
underlying lease and loan payment streams.
DFS
International Debt
Securitization
Facility —
The
Company maintains a securitization facility in Europe for fixed-term leases and loans. The debt under
this facility has a variable interest rate, and the duration of the debt is based on the terms of the
underlying loan and lease payment streams. This facility is effective through December 23, 2024 and
had a total debt capacity of $873 million as of February 3, 2023.
The
securitization facility contains standard structural features related to the performance of the
securitized receivables, which include defined credit losses, delinquencies, average credit scores, and
minimum collection requirements. In the event one or more of these criteria are not met and the Company
is unable to restructure the program, no further funding of receivables will be permitted and the timing
of the Company’s expected cash flows from over-collateralization will be delayed. As of
February 3, 2023, these criteria were met.
Other
Borrowings —
In
connection with the Company’s international financing operations, the Company has entered into
revolving structured financing debt programs related to its fixed-term lease and loan products sold in
Canada, Europe, Australia, and New Zealand. The debt under these programs has a variable interest rate,
and the duration of the debt is based on the terms of the underlying loan and lease payment streams. The
Canadian facility, which is collateralized solely by Canadian loan and lease payments and associated
equipment, had a total debt capacity of $338 million
as
of February 3, 2023 and is effective through January 16, 2025. The European facility, which is
collateralized solely by European loan and lease payments and associated equipment, had a total debt
capacity of
$
655 million as of February 3, 2023 and is effective through
June 14, 2025. The Australia and New Zealand facility, which is collateralized solely by Australia
and New Zealand loan and lease payments and associated equipment, had a total debt capacity of $
318 million as of February 3, 2023 and is effective through
April 20, 2023.
Note
Payable —
On
May 25, 2022, the Company entered into an unsecured credit agreement to fund receivables in Mexico.
As of February 3, 2023, the aggregate principal amount of the note payable was $250
million. The note bears interest at an annual rate of 4.24
% and will mature on May 31, 2024.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Dell
Bank Senior Unsecured Eurobonds —
On June 24, 2020, Dell Bank issued 500
million Euro of 1.625
% senior unsecured four year eurobonds due June 2024. On
October 27, 2021, Dell Bank issued 500
million Euro of 0.5
% senior unsecured five year eurobonds due October 2026. On
October 18, 2022, Dell Bank issued 500
million Euro of 4.5
% senior unsecured five year eurobonds due October
2027.
The
issuances of the senior unsecured eurobonds support the expansion of the financing operations in
Europe.
Variable
Interest Entities
In
connection with the asset-based financing facilities, securitization facilities, and fixed-term
securitization offerings discussed above, the Company transfers certain U.S. and European lease and loan
payments and associated equipment to SPEs that meet the definition of a VIE and are consolidated, along
with the associated debt described above, into the Consolidated Financial Statements, as the Company is
the primary beneficiary of the VIEs. The SPEs are bankruptcy-remote legal entities with separate assets
and liabilities. The purpose of the SPEs is to facilitate the funding of customer loan and lease
payments and associated equipment in the capital markets.
Some
of the SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue
asset-backed debt securities in the capital markets. DFS debt outstanding held by the consolidated VIEs
is collateralized by the lease and loan payments and associated equipment. The Company’s risk of
loss related to securitized receivables is limited to the amount by which the Company’s right to
receive collections for assets securitized exceeds the amount required to pay interest, principal, and
fees and expenses related to the asset-backed securities. The Company provides credit enhancement to the
securitization in the form of over-collateralization.
The
following table presents the assets and liabilities held by the consolidated VIEs as of the dates
indicated, which are included in the Consolidated Statements of Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
|
(in
millions) |
| Assets
held by consolidated VIEs |
|
|
|
|
Other
current assets |
$
|
274
|
|
|
$
|
535
|
|
|
Financing
receivables, net of allowance |
|
|
|
|
Short-term
|
$
|
3,702
|
|
|
$
|
3,368
|
|
|
Long-term
|
$
|
3,295
|
|
|
$
|
3,141
|
|
| Property,
plant, and equipment, net |
$
|
1,164
|
|
|
$
|
945
|
|
| Liabilities
held by consolidated VIEs |
|
|
|
| Debt,
net of unamortized debt issuance costs |
|
|
|
|
Short-term
|
$
|
4,761
|
|
|
$
|
4,560
|
|
|
Long-term
|
$
|
2,685
|
|
|
$
|
2,235
|
|
Lease
and loan payments and associated equipment transferred via securitization through SPEs were $
6.2 billion and $5.3 billion for the fiscal years
ended February 3, 2023 and January 28, 2022, respectively.
Customer
Receivable Sales
To
manage certain concentrations of customer credit exposure, the Company may sell selected fixed-term
customer receivables to unrelated third parties on a periodic basis, without recourse. The amount of
customer receivables sold for this purpose was $680 million, $201 million, and $648 million for the fiscal years ended February 3, 2023,
January 28, 2022, and January 29, 2021, respectively. The Company’s continuing
involvement in these customer receivables is primarily limited to servicing arrangements.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
7 — LEASES
The
Company enters into leasing transactions in which the Company is the lessee. These lease contracts are
typically classified as operating leases. The Company’s lease contracts are generally for office
buildings used to conduct its business, and the determination of whether such contracts contain leases
generally does not require significant estimates or judgments. The Company also leases certain global
logistics warehouses, employee vehicles, and equipment. As of February 3, 2023, the remaining terms
of the Company’s leases range from one
month to approximately ten
years. As of February 3, 2023 and January 28, 2022, there were no material
finance leases for which the Company was a lessee.
The
Company also enters into leasing transactions in which the Company is the lessor, primarily through
customer financing arrangements offered through DFS. DFS originates leases that are primarily classified
as either sales-type leases or operating leases. See Note 6 of the Notes to the Consolidated Financial
Statements for more information on the Company’s lessor arrangements.
The
following table presents components of lease costs included in the Consolidated Statements of Income
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Operating
lease costs |
|
|
|
|
$
|
283
|
|
|
$
|
335
|
|
|
Variable
costs |
|
|
|
|
113
|
|
|
96
|
|
|
Total
lease costs |
|
|
|
|
$
|
396
|
|
|
$
|
431
|
|
During
the fiscal years ended February 3, 2023 and January 28, 2022, sublease income, finance
lease costs, and short-term lease costs were immaterial.
The
following table presents supplemental information related to operating leases included in the
Consolidated Statements of Financial Position as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except for term and discount rate) |
| Operating
lease right-of-use assets |
Other non-current
assets |
$
|
725
|
|
$
|
871
|
|
|
|
|
|
|
|
|
|
| Current
operating lease liabilities |
Accrued and other
current liabilities |
$
|
260
|
|
$
|
287
|
|
|
| Non-current
operating lease liabilities |
Other non-current
liabilities |
630
|
|
720
|
|
|
|
Total
operating lease liabilities |
|
$
|
890
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
| Weighted-average
remaining lease term (in years) |
|
4.95
|
|
5.51
|
|
|
| Weighted-average
discount rate |
|
3.48
|
%
|
|
3.01
|
%
|
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents supplemental cash flow information related to leases for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
Cash
paid for amounts included in the measurement of lease liabilities —
operating cash outflows from operating leases (a) |
$
|
306
|
|
|
$
|
459
|
|
|
|
|
|
|
Right-of-use
assets obtained in exchange for new operating lease liabilities |
$
|
226
|
|
|
$
|
144
|
|
____________________
(a)
Cash paid for amounts included in the measurement of lease liabilities - operating cash outflows
from operating leases from discontinued operations was $135
million for the fiscal year ended January 28, 2022.
The
following table presents the future maturity of the Company’s operating lease liabilities
under non-cancelable leases and reconciles the undiscounted cash flows for these leases to the lease
liability recognized on the Consolidated Statements of Financial Position as of the date indicated:
|
|
|
|
|
|
|
February
3, 2023 |
|
(in
millions) |
| Fiscal
2024 |
$
|
260
|
|
| Fiscal
2025 |
200
|
|
| Fiscal
2026 |
162
|
|
| Fiscal
2027 |
121
|
|
| Fiscal
2028 |
85
|
|
| Thereafter
|
138
|
|
|
Total
lease payments |
966
|
|
|
Less:
Imputed interest |
(
76) |
|
|
Total
|
$
|
890
|
|
|
Current
operating lease liabilities |
$
|
260
|
|
|
Non-current
operating lease liabilities |
$
|
630
|
|
As
of February 3, 2023, the Company’s undiscounted operating leases that had not yet commenced
were immaterial.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
8 — DEBT
The
following table summarizes the Company’s outstanding debt as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
| Senior
Notes: |
|
|
|
|
5.45% due June 2023
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
4.00% due July 2024
|
1,000
|
|
|
1,000
|
|
|
5.85% due July 2025
|
1,000
|
|
|
1,000
|
|
|
6.02% due June 2026
|
4,500
|
|
|
4,500
|
|
|
4.90% due October 2026
|
1,750
|
|
|
1,750
|
|
|
6.10% due July 2027
|
500
|
|
|
500
|
|
|
5.25% due February 2028
|
1,000
|
|
|
—
|
|
|
5.30% due October 2029
|
1,750
|
|
|
1,750
|
|
|
6.20% due July 2030
|
750
|
|
|
750
|
|
|
5.75% due February 2033
|
1,000
|
|
|
—
|
|
|
8.10% due July 2036
|
1,000
|
|
|
1,000
|
|
|
3.38% due December 2041
|
1,000
|
|
|
1,000
|
|
|
8.35% due July 2046
|
800
|
|
|
800
|
|
|
3.45% due December 2051
|
1,250
|
|
|
1,250
|
|
| Legacy
Notes and Debentures: |
|
|
|
|
7.10% due April 2028
|
300
|
|
|
300
|
|
|
6.50% due April 2038
|
388
|
|
|
388
|
|
|
5.40% due September 2040
|
264
|
|
|
264
|
|
|
DFS
Debt (Note 6)
|
10,290
|
|
|
9,646
|
|
| Other
|
325
|
|
|
337
|
|
|
Total
debt, principal amount |
$
|
29,867
|
|
|
$
|
27,235
|
|
|
Unamortized
discount, net of unamortized premium |
(
133) |
|
|
(
134) |
|
|
Debt
issuance costs |
(
146
) |
|
|
(
147
) |
|
|
Total
debt, carrying value |
$
|
29,588
|
|
|
$
|
26,954
|
|
|
Total
short-term debt, carrying value |
$
|
6,573
|
|
|
$
|
5,823
|
|
|
Total
long-term debt, carrying value |
$
|
23,015
|
|
|
$
|
21,131
|
|
Fiscal
2023 Senior Note Issuance
On
January 24, 2023, the Company completed a public offering of senior notes in the aggregate principal
amount of $2.0 billion. In the public offering, the Company issued $
1.0
billion aggregate principal amount of 5.25
% senior notes due 2028 and $1.0
billion aggregate principal amount of 5.75
% senior notes due 2033. Interest on these borrowings is payable semiannually. The
Company intends to utilize the proceeds of the issued senior notes to repay the 5.45
% senior notes due June 2023 and to utilize the remaining proceeds for general
corporate purposes, including repayment of other debt.
Commercial
Paper Program
On
July 18, 2022, the Company established a commercial paper program under which the Company may issue
unsecured notes in a maximum aggregate face amount of $5.0 billion outstanding at any time, with maturities up to
397 days from
the date of issuance. The notes will be sold on customary terms in the U.S. commercial paper market on a
private placement basis. The proceeds of the notes will be used for general corporate purposes. As of
February 3, 2023, the Company had no
outstanding borrowings under the commercial paper program. Commercial paper issuances
and repayments with maturities of 90 days or less are presented on a net basis
within cash flows from financing activities on the Consolidated Statements of Cash Flows.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Outstanding
Debt
Senior
Notes —
The Company completed private offerings of multiple series of senior notes which were issued on June 1,
2016, June 22, 2016, March 20, 2019, April 9, 2020, and December 13, 2021 in aggregate principal amounts
of $20.0
billion, $3.3
billion, $4.5
billion, $2.3
billion, and $2.3
billion, respectively (together with the registered senior notes subsequently issued
in exchange and the senior notes issued on January 24, 2023, the “Senior Notes”). Interest
on these borrowings is payable semiannually.
In
June 2021, Dell International L.L.C. and EMC Corporation, wholly-owned subsidiaries of Dell Technologies
Inc. and issuers of the Senior Notes (the “Issuers”), completed an offer to exchange any and
all outstanding Senior Notes issued on June 1, 2016, March 20, 2019, and April 9, 2020 for senior notes
registered under the Securities Act of 1933 having terms substantially identical to the terms of the
outstanding Senior Notes. The Issuers issued $18.4
billion aggregate principal amount of registered Senior Notes in exchange for the
same aggregate principal amount of unregistered Senior Notes. The aggregate principal amount of
unregistered Senior Notes remaining outstanding following the settlement of the exchange offer was
approximately $0.1 billion.
Legacy
Notes and Debentures
— The Company has outstanding unsecured notes and debentures (collectively, the “Legacy
Notes and Debentures”) that were issued by Dell Inc. (“Dell”), a wholly-owned
subsidiary of Dell Technologies Inc., prior to the acquisition of Dell by Dell Technologies Inc. in the
going-private transaction that closed in October 2013. Interest on these borrowings is payable
semiannually.
DFS
Debt
— See Note 6 and Note 9 of the Notes to the Consolidated Financial Statements, respectively, for
discussion of DFS debt and the interest rate swap agreements that hedge a portion of that debt.
2021
Revolving Credit Facility
— As of February 3, 2023, the Company’s revolving credit facility, which was entered
into on November 1, 2021 (the “2021 Revolving Credit Facility”), matures on November 1,
2027. This facility provides the Company with revolving commitments in an aggregate principal amount of
$6.0 billion as of February 3, 2023 for general corporate purposes,
including liquidity support for the Company’s commercial paper program, and includes a letter of
credit sub-facility of up to $0.5 billion and a swing-line loan sub-facility of up to $
0.5 billion. The 2021 Revolving Credit Facility also allows the
Company to obtain incremental additional commitments on one or more occasions in minimum amounts of $
10 million.
Borrowings
under the 2021 Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin
plus, at the borrowers’ option, either (a) the specified adjusted term Secured Overnight Financing
Rate (“SOFR”) or (b) a base rate. The margin applicable to SOFR and base rate borrowings
varies based upon the Company’s existing date ratings. The base rate is calculated based upon the
greatest of the specified prime rate, the specified federal reserve bank rate, or SOFR plus
1
%. The borrowers may voluntarily repay outstanding loans under the 2021 Revolving
Credit Facility at any time without premium or penalty, other than customary breakage costs.
As
of February 3, 2023, available borrowings under the 2021 Revolving Credit Facility totaled $
6.0 billion.
The
Company may purchase, redeem, prepay, refinance, or otherwise retire any amount of outstanding
indebtedness under the terms of such indebtedness at any time and from time to time, in open market or
negotiated transactions with the holders of such indebtedness or otherwise, as considered appropriate in
light of market conditions and other relevant factors.
Covenants
— The credit agreement governing the 2021 Revolving Credit Facility and the indentures governing
the Senior Notes and the Legacy Notes and Debentures impose various limitations, subject to exceptions,
on creating certain liens and entering into sale and lease-back transactions. The foregoing credit
agreement and indentures contain customary events of default, including failure to make required
payments, failure to comply with covenants, and the occurrence of certain events of bankruptcy and
insolvency. The 2021 Revolving Credit Facility is also subject to an interest coverage ratio covenant
that is tested at the end of each fiscal quarter with respect to the Company’s preceding four
fiscal quarters. The Company was in compliance with this financial covenant as of February 3,
2023.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Aggregate
Future Maturities
The
following table presents the aggregate future maturities of the Company’s debt as of
February 3, 2023 for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
by Fiscal Year |
|
|
2024
|
|
2025
|
|
2026
|
|
2027
|
|
2028
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Senior
Notes |
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
6,250
|
|
|
$
|
500
|
|
|
$
|
8,550
|
|
|
$
|
18,300
|
|
| Legacy
Notes and Debentures |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
952
|
|
|
952
|
|
| DFS
Debt |
5,400
|
|
|
3,442
|
|
|
305
|
|
|
595
|
|
|
548
|
|
|
—
|
|
|
10,290
|
|
| Other
|
177
|
|
|
116
|
|
|
24
|
|
|
5
|
|
|
3
|
|
|
—
|
|
|
325
|
|
|
Total
maturities, principal amount |
6,577
|
|
|
4,558
|
|
|
1,329
|
|
|
6,850
|
|
|
1,051
|
|
|
9,502
|
|
|
29,867
|
|
|
Associated
carrying value adjustments |
(
4) |
|
|
(
8) |
|
|
(
2) |
|
|
(
54) |
|
|
(
5) |
|
|
(
206) |
|
|
(
279) |
|
|
Total
maturities, carrying value amount |
$
|
6,573
|
|
|
$
|
4,550
|
|
|
$
|
1,327
|
|
|
$
|
6,796
|
|
|
$
|
1,046
|
|
|
$
|
9,296
|
|
|
$
|
29,588
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
9 — DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES
As
part of its risk management strategy, the Company uses derivative instruments, primarily foreign
currency forward and option contracts and interest rate swaps, to hedge certain foreign currency and
interest rate exposures, respectively.
The
Company’s objective is to offset gains and losses resulting from these exposures with gains
and losses on the derivative contracts used to hedge the exposures, thereby reducing volatility of
earnings and protecting the fair values of assets and liabilities. The earnings effects of the
derivative instruments are presented in the same income statement line items as the earnings effects
of the hedged items. For derivatives designated as cash flow hedges, the Company assesses hedge
effectiveness both at the onset of the hedge and at regular intervals throughout the life of the
instruments. For derivatives designated as fair value hedges, the Company assesses hedge
effectiveness on qualifying instruments using the shortcut method whereby the hedges are considered
perfectly effective at the onset of the hedge and over the life of the hedging relationship.
Foreign
Exchange Risk
The
Company uses foreign currency forward and option contracts designated as cash flow hedges to protect
against the foreign currency exchange rate risks inherent in its forecasted transactions denominated in
currencies other than the U.S. Dollar. Hedge accounting is applied based upon the criteria established
by accounting guidance for derivative instruments and hedging activities. The risk of loss associated
with purchased options is limited to premium amounts paid for the option contracts. The risk of loss
associated with forward contracts is equal to the exchange rate differential from the time the contract
is entered into until the time it is settled. The majority of these contracts typically expire in
twelve months
or less.
During
the fiscal years ended February 3, 2023, January 28, 2022, and January 29, 2021, the
Company did not discontinue any cash flow hedges related to foreign exchange contracts that had a
material impact on the Company’s results of operations due to the probability that the forecasted
cash flows would not occur.
The
Company uses forward contracts to hedge monetary assets and liabilities denominated in a foreign
currency. These contracts generally expire in three months
or less, are considered economic hedges, and are not designated for hedge accounting.
The change in the fair value of these instruments represents a natural hedge as their gains and losses
offset the changes in the underlying fair value of the monetary assets and liabilities due to movements
in currency exchange rates.
In
connection with DFS operations in Europe, forward contracts are used to hedge financing receivables
denominated in foreign currencies other than Euro. These contracts are not designated for hedge
accounting and most expire within three years
or less.
Interest
Rate Risk
The
Company uses interest rate swaps to hedge the variability in cash flows related to the interest rate
payments on structured financing debt. The interest rate swaps economically convert the variable rate on
the structured financing debt to a fixed interest rate to match the underlying fixed rate being received
on fixed-term customer leases and loans. These contracts are not designated for hedge accounting and
most expire within four years
or less.
Interest
rate swaps are utilized to manage the interest rate risk, at a portfolio level, associated with DFS
operations in Europe. The interest rate swaps economically convert the fixed rate on financing
receivables to a three-month Euribor floating rate in order to match the floating rate nature of the
banks’ funding pool. The Company also uses interest rate swaps to manage the cash flows related to
interest payments on Eurobonds. The interest rate swaps economically convert the fixed rate on its bonds
to a floating rate to match the underlying lease repayments profile. None of these contracts are
designated for hedge accounting and most expire within five years
or less.
The
Company utilizes cross-currency amortizing swaps to hedge the currency and interest rate risk exposure
associated with the European securitization program. The cross-currency swaps combine a Euro-based
interest rate swap with a British Pound or U.S. Dollar foreign exchange forward contract in which the
Company pays a fixed or floating British Pound or U.S. Dollar amount and receives a fixed or floating
amount in Euros linked to the one-month Euribor. The notional value of the swaps amortizes in line with
the expected cash flows and run-off of the securitized assets. The swaps are not designated for
hedge accounting and expire within
five years
or less.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Periodically,
the Company also uses interest rate swaps to modify the market risk exposures in connection with
long-term debt. During the fiscal year ended February 3, 2023, the Company entered into interest rate
swaps designated as fair value hedges intended to hedge a portion of its interest rate exposure by
converting the fixed interest rate of a certain tranche of debt to a floating interest rate based on the
benchmark SOFR Overnight Index Swap rate. As of February 3, 2023, the carrying amount of the hedged
debt was $1 billion. The gains and losses related to changes in the fair
value of the interest rate swaps perfectly offset changes in the fair value of the hedged portion of the
underlying debt that are attributable to the changes in the underlying benchmark interest rate. During
the fiscal year ended February 3, 2023, the cumulative amount of fair value hedge accounting
adjustments was immaterial. These contracts expire within four years
.
Derivative
Instruments
The
following table presents the notional amounts of outstanding derivative instruments as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
|
(in
millions) |
| Foreign
exchange contracts: |
|
|
|
|
Designated
as cash flow hedging instruments |
$
|
7,746
|
|
|
$
|
7,879
|
|
|
Non-designated
as hedging instruments |
6,833
|
|
|
8,713
|
|
|
Total
|
$
|
14,579
|
|
|
$
|
16,592
|
|
| Interest
rate contracts: |
|
|
|
|
Designated
as fair value hedging instruments |
$
|
1,000
|
|
|
$
|
—
|
|
|
Non-designated
as hedging instruments |
7,214
|
|
|
6,715
|
|
|
Total
|
$
|
8,214
|
|
|
$
|
6,715
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents the effect of derivative instruments designated as cash flow hedging
instruments on the Consolidated Statements of Financial Position and the Consolidated Statements of
Income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivatives
in Cash Flow Hedging Relationships |
|
Gain
(Loss) Recognized in Accumulated OCI, Net of Tax, on Derivatives |
|
Location
of Gain (Loss) Reclassified from Accumulated OCI into Income |
|
Gain
(Loss) Reclassified from Accumulated OCI into Income |
|
|
(in
millions) |
|
|
|
(in
millions) |
| For
the fiscal year ended February 3, 2023: |
|
|
|
|
Total
net revenue |
|
$
|
736
|
|
| Foreign
exchange contracts |
|
$
|
354
|
|
|
Total
cost of net revenue |
|
(
31) |
|
| Total
|
|
$
|
354
|
|
|
Total
|
|
$
|
705
|
|
|
|
|
|
|
|
|
| For
the fiscal year ended January 28, 2022: |
|
|
|
|
Total
net revenue |
|
$
|
158
|
|
|
|
|
|
Total
cost of net revenue |
|
(
3) |
|
| Foreign
exchange contracts |
|
$
|
374
|
|
|
Income
from discontinued operations |
|
3
|
|
| Total
|
|
$
|
374
|
|
|
Total
|
|
$
|
158
|
|
|
|
|
|
|
|
|
| For
the fiscal year ended January 29, 2021 |
|
|
|
|
Total
net revenue |
|
$
|
(
98) |
|
|
|
|
|
Total
cost of net revenue |
|
5
|
|
| Foreign
exchange contracts |
|
$
|
(
200) |
|
|
Income
from discontinued operations |
|
(
7) |
|
| Total
|
|
$
|
(
200) |
|
|
Total
|
|
$
|
(
100) |
|
The
following table presents the effect of derivative instruments not designated as hedging instruments
on the Consolidated Statements of Income as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
Location
of Gain (Loss) Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
| Foreign
exchange contracts |
|
|
|
|
$
|
(
174) |
|
|
$
|
(
469) |
|
|
$
|
169
|
|
|
Interest
and other, net |
| Interest
rate contracts |
|
|
|
|
50
|
|
|
10
|
|
|
(
45) |
|
|
Interest
and other, net |
|
Foreign
exchange contracts |
|
|
|
|
—
|
|
|
26
|
|
|
(
62) |
|
|
Income
from discontinued operations |
|
Total
|
|
|
|
|
$
|
(
124) |
|
|
$
|
(
433) |
|
|
$
|
62
|
|
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
Company presents its derivative instruments on a net basis in the Consolidated Statements of Financial
Position due to the right of offset by its counterparties under master netting arrangements.
The following tables
present the fair value of those derivative instruments presented on a gross basis as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
|
Other
Current Assets |
|
Other
Non- Current Assets |
|
Other
Current Liabilities |
|
Other
Non-Current Liabilities |
|
Total Fair
Value |
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Derivatives
designated as hedging instruments: |
| Foreign
exchange contracts in an asset position |
$
|
7
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
37
|
|
| Foreign
exchange contracts in a liability position |
(
21) |
|
|
—
|
|
|
(
142) |
|
|
—
|
|
|
(
163) |
|
| Interest
rate contracts in an asset position |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| Interest
rate contracts in a liability position |
—
|
|
|
—
|
|
|
—
|
|
|
(
6) |
|
|
(
6) |
|
|
Net
asset (liability) |
(
14) |
|
|
—
|
|
|
(
112) |
|
|
(
6) |
|
|
(
132) |
|
| Derivatives
not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| Foreign
exchange contracts in an asset position |
282
|
|
|
1
|
|
|
368
|
|
|
—
|
|
|
651
|
|
| Foreign
exchange contracts in a liability position |
(
121) |
|
|
—
|
|
|
(
614) |
|
|
(
1) |
|
|
(
736) |
|
| Interest
rate contracts in an asset position |
14
|
|
|
133
|
|
|
—
|
|
|
—
|
|
|
147
|
|
| Interest
rate contracts in a liability position |
—
|
|
|
—
|
|
|
—
|
|
|
(
95) |
|
|
(
95) |
|
|
Net
asset (liability) |
175
|
|
|
134
|
|
|
(
246) |
|
|
(
96) |
|
|
(
33) |
|
|
Total
derivatives at fair value |
$
|
161
|
|
|
$
|
134
|
|
|
$
|
(
358) |
|
|
$
|
(
102) |
|
|
$
|
(
165) |
|
|
|
|
|
|
|
|
|
|
|
|
|
January
28, 2022 |
|
|
Other
Current Assets |
|
Other
Non- Current Assets |
|
Other
Current Liabilities |
|
Other
Non-Current Liabilities |
|
Total Fair
Value |
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Derivatives
designated as hedging instruments: |
| Foreign
exchange contracts in an asset position |
$
|
135
|
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
185
|
|
| Foreign
exchange contracts in a liability position |
(
5) |
|
|
—
|
|
|
(
8) |
|
|
—
|
|
|
(
13) |
|
|
Net
asset |
130
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
172
|
|
| Derivatives
not designated as hedging instruments: |
| Foreign
exchange contracts in an asset position |
280
|
|
|
2
|
|
|
106
|
|
|
—
|
|
|
388
|
|
| Foreign
exchange contracts in a liability position |
(
189) |
|
|
—
|
|
|
(
244) |
|
|
(
5) |
|
|
(
438) |
|
| Interest
rate contracts in an asset position |
—
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
30
|
|
| Interest
rate contracts in a liability position |
—
|
|
|
—
|
|
|
—
|
|
|
(
37) |
|
|
(
37) |
|
|
Net
asset (liability) |
91
|
|
|
32
|
|
|
(
138) |
|
|
(
42) |
|
|
(
57) |
|
|
Total
derivatives at fair value |
$
|
221
|
|
|
$
|
32
|
|
|
$
|
(
96) |
|
|
$
|
(
42) |
|
|
$
|
115
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following tables present the gross amounts of the Company’s derivative instruments,
amounts offset due to master netting agreements with the Company’s counterparties, and the
net amounts recognized in the Consolidated Statements of Financial Position as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
Gross
Amounts of Recognized Assets/ (Liabilities) |
|
Gross
Amounts Offset in the Statement of Financial Position |
|
Net
Amounts of Assets/ (Liabilities) Presented in the Statement of Financial
Position |
|
Gross
Amounts not Offset in the Statement of Financial Position |
|
Net
Amount of Assets/ (Liabilities) Recognized in the Statement of Financial
Position |
|
Financial
Instruments |
|
Cash
Collateral Received or Pledged |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Derivative
instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
$
|
835
|
|
|
$
|
(
540
) |
|
|
$
|
295
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
295
|
|
|
Financial liabilities |
(
1,000
) |
|
|
540
|
|
|
(
460
) |
|
|
—
|
|
|
25
|
|
|
(
435) |
|
|
Total
derivative instruments |
$
|
(
165) |
|
|
$
|
—
|
|
|
$
|
(
165) |
|
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
(
140) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
28, 2022 |
|
Gross
Amounts of Recognized Assets/ (Liabilities) |
|
Gross
Amounts Offset in the Statement of Financial Position |
|
Net
Amounts of Assets/ (Liabilities) Presented in the Statement of Financial
Position |
|
Gross
Amounts not Offset in the Statement of Financial Position |
|
Net
Amount of Assets/ (Liabilities) Recognized in the Statement of Financial
Position |
|
Financial
Instruments |
|
Cash
Collateral Received or Pledged |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Derivative
instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
$
|
603
|
|
|
$
|
(
350
) |
|
|
$
|
253
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
253
|
|
|
Financial liabilities |
(
488) |
|
|
350
|
|
|
(
138
) |
|
|
—
|
|
|
24
|
|
|
(
114) |
|
|
Total
derivative instruments |
$
|
115
|
|
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
139
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
10 — GOODWILL AND INTANGIBLE ASSETS
Goodwill
The
Infrastructure Solutions Group and Client Solutions Group reporting units are consistent with the
reportable segments identified in Note 19 of the Notes to the Consolidated Financial Statements. Other
businesses consists of VMware Resale, Secureworks, and Virtustream, which each represent separate
reporting units.
The
following table presents goodwill allocated to the Company’s reportable segments and changes
in the carrying amount of goodwill as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
Solutions Group |
|
Client
Solutions Group |
|
Other
Businesses |
|
Total
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Balances
as of January 29, 2021 |
$
|
15,325
|
|
|
$
|
4,237
|
|
|
$
|
466
|
|
|
$
|
20,028
|
|
|
|
|
|
|
|
|
|
|
Impact
of foreign currency translation |
(
219) |
|
|
—
|
|
|
—
|
|
|
(
219) |
|
|
Goodwill
divested |
—
|
|
|
—
|
|
|
(
39) |
|
|
(
39) |
|
|
|
|
|
|
|
|
|
| Balances
as of January 28, 2022 |
$
|
15,106
|
|
|
$
|
4,237
|
|
|
$
|
427
|
|
|
$
|
19,770
|
|
|
Goodwill
acquired |
48
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
Impact
of foreign currency translation and other |
(
137) |
|
|
(
5) |
|
|
—
|
|
|
(
142) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balances
as of February 3, 2023 |
$
|
15,017
|
|
|
$
|
4,232
|
|
|
$
|
427
|
|
|
$
|
19,676
|
|
Intangible
Assets
The
following table presents the Company’s intangible assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Customer
relationships |
$
|
16,956
|
|
|
$
|
(
14,474
) |
|
|
$
|
2,482
|
|
|
$
|
16,956
|
|
|
$
|
(
13,938
) |
|
|
$
|
3,018
|
|
|
Developed
technology |
9,466
|
|
|
(
8,660
) |
|
|
806
|
|
|
9,635
|
|
|
(
8,405
) |
|
|
1,230
|
|
|
Trade
names |
875
|
|
|
(
780) |
|
|
95
|
|
|
885
|
|
|
(
757) |
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived
intangible assets |
27,297
|
|
|
(
23,914
) |
|
|
3,383
|
|
|
27,476
|
|
|
(
23,100
) |
|
|
4,376
|
|
|
Indefinite-lived
trade names |
3,085
|
|
|
—
|
|
|
3,085
|
|
|
3,085
|
|
|
—
|
|
|
3,085
|
|
|
Total
intangible assets |
$
|
30,382
|
|
|
$
|
(
23,914
) |
|
|
$
|
6,468
|
|
|
$
|
30,561
|
|
|
$
|
(
23,100
) |
|
|
$
|
7,461
|
|
Amortization
expense related to definite-lived intangible assets was $1.0
billion, $1.6
billion, and $2.1
billion for the fiscal years ended February 3, 2023, January 28, 2022, and
January 29, 2021, respectively. There were
no
material impairment charges related to intangible assets during the fiscal years ended
February 3, 2023, January 28, 2022, and January 29, 2021.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents the estimated future annual pre-tax amortization expense of definite-lived
intangible assets as of the date indicated:
|
|
|
|
|
|
|
February
3, 2023 |
|
(in
millions) |
| Fiscal
2024 |
$
|
764
|
|
| Fiscal
2025 |
599
|
|
| Fiscal
2026 |
472
|
|
| Fiscal
2027 |
364
|
|
| Fiscal
2028 |
268
|
|
| Thereafter
|
916
|
|
|
Total
|
$
|
3,383
|
|
Goodwill
and Indefinite-Lived Intangible Assets Impairment Testing
Goodwill
and indefinite-lived intangible assets are tested for impairment annually during the third fiscal
quarter and whenever events or circumstances may indicate that an impairment has occurred.
For
the annual impairment review during the third quarter of Fiscal 2023, the Company elected to bypass the
assessment of qualitative factors to determine whether it was more likely than not that the fair value
of a reporting unit was less than its carrying amount, including goodwill. In electing to bypass the
qualitative assessment, the Company proceeded directly to perform a quantitative goodwill impairment
test to measure the fair value of each goodwill reporting unit relative to its carrying amount, and to
determine the amount of goodwill impairment loss to be recognized, if any.
Management
exercised significant judgment related to the above assessment, including the identification of goodwill
reporting units, assignment of assets and liabilities to goodwill reporting units, assignment of
goodwill to reporting units, and determination of the fair value of each goodwill reporting unit. The
fair value of each goodwill reporting unit is generally estimated using a combination of public company
multiples and discounted cash flow methodologies. The discounted cash flow and public company multiples
methodologies require significant judgment, including estimation of future revenues, gross margins, and
operating expenses, which are dependent on internal forecasts, current and anticipated economic
conditions and trends, selection of market multiples through assessment of the reporting unit’s
performance relative to peer competitors, the estimation of the long-term revenue growth rate and
discount rate of the Company’s business, and the determination of the Company’s weighted
average cost of capital. Changes in these estimates and assumptions could materially affect the fair
value of the goodwill reporting unit, potentially resulting in a non-cash impairment charge.
The
fair value of the indefinite-lived trade names is generally estimated using discounted cash flow
methodologies. These methodologies require significant judgment, including estimation of future revenue,
the estimation of the long-term revenue growth rate of the Company’s business and the
determination of the Company’s weighted average cost of capital and royalty rates. Changes in
these estimates and assumptions could materially affect the fair value of the indefinite-lived
intangible assets, potentially resulting in a non-cash impairment charge.
Based
on the results of the annual impairment test performed during the fiscal year ended February 3,
2023, the fair values of each of the reporting units exceeded their carrying values. No goodwill
impairment test was performed during the fiscal year ended February 3, 2023 other than the
Company’s annual impairment review.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
11 — DEFERRED REVENUE
Deferred
Revenue
—
Deferred revenue consists of support and deployment services, software maintenance, training,
Software-as-a-Service, and undelivered hardware and professional services, consisting of installations
and consulting engagements. Deferred revenue is recorded when the Company has invoiced or payments have
been received for undelivered products or services where transfer of control has not occurred. Revenue
is recognized as the Company’s performance obligations under the contract are completed.
The
following table presents the changes in the Company’s deferred revenue for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Deferred
revenue: |
|
|
|
|
|
|
|
| Deferred
revenue at beginning of period |
|
|
|
|
$
|
27,573
|
|
|
$
|
25,592
|
|
| Revenue
deferrals |
|
|
|
|
23,166
|
|
|
20,968
|
|
| Revenue
recognized |
|
|
|
|
(
20,288)
|
|
|
(
18,843)
|
|
| Other
(a) |
|
|
|
|
(
165) |
|
|
(
144) |
|
| Deferred
revenue at end of period |
|
|
|
|
$
|
30,286
|
|
|
$
|
27,573
|
|
|
Short-term
deferred revenue |
|
|
|
|
$
|
15,542
|
|
|
$
|
14,261
|
|
|
Long-term
deferred revenue |
|
|
|
|
$
|
14,744
|
|
|
$
|
13,312
|
|
____________________
(a) For
the fiscal year ended February 3, 2023, Other represents the reclassification of deferred
revenue to accrued and other liabilities. For the fiscal year ended January 28, 2022, Other
consists of divested deferred revenue from the sale of Boomi. See Note 1 of the Notes to the
Consolidated Financial Statements for more information about the divestiture of Boomi.
Remaining
Performance Obligations —
Remaining performance obligations represent the aggregate amount of the transaction price allocated to
performance obligations not delivered, or partially undelivered, as of the end of the reporting period.
Remaining performance obligations include deferred revenue plus unbilled amounts not yet recorded in
deferred revenue. The value of the transaction price allocated to remaining performance obligations as
of February 3, 2023 was approximately $40 billion. The Company expects to recognize approximately
57
% of remaining performance obligations as revenue in the next twelve months, and the remainder
thereafter.
The
aggregate amount of the transaction price allocated to remaining performance obligations does not
include amounts owed under cancelable contracts where there is no substantive termination penalty. The
Company applied the practical expedient to exclude the value of remaining performance obligations for
contracts for which revenue is recognized at the amount to which the Company has the right to invoice
for services performed.
Remaining
performance obligation estimates are subject to change and are affected by several factors, including
terminations, changes in the scope of contracts, periodic revalidation, adjustments for revenue that
have not materialized, and adjustments for currency.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
12 — COMMITMENTS AND CONTINGENCIES
Purchase
Obligations
The
Company has contractual obligations to purchase goods or services, which specify significant terms
(including fixed or minimum quantities to be purchased), fixed, minimum, or variable price provisions;
and the approximate timing of the transaction. As of February 3, 2023, such purchase obligations
were $3.5 billion for Fiscal 2024; $
0.4 billion for Fiscal 2025; $
0.2 billion for Fiscal 2026; $
0.2 billion for Fiscal 2027; $
0.1 billion for Fiscal 2028; and
immaterial thereafter.
Legal
Matters
The
Company is involved in various claims, suits, assessments, investigations, and legal proceedings that
arise from time to time in the ordinary course of its business, including those identified below,
consisting of matters involving consumer, antitrust, tax, intellectual property, and other issues on a
global basis. Pursuant to the Separation and Distribution Agreement referred to below, Dell Technologies
shares responsibility with VMware for certain matters, as indicated below, and VMware has agreed to
indemnify Dell Technologies in whole or in part with respect to certain matters.
The
Company accrues a liability when it believes that it is both probable that a liability has been incurred
and that it can reasonably estimate the amount of the loss. The Company reviews these accruals at least
quarterly and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal
counsel, and other relevant information. To the extent new information is obtained and the
Company’s views on the probable outcomes of claims, suits, assessments, investigations, or legal
proceedings change, changes in the Company’s accrued liabilities are recorded in the period in
which such a determination is made. For some matters, the incurrence of a liability is not probable or
the amount cannot be reasonably estimated and therefore accruals have not been made.
The
following is a discussion of the Company’s significant legal matters and other proceedings:
Class
Actions Related to the Class V Transaction —
On December 28, 2018, the Company completed a transaction (the “Class V transaction”)
in which it paid $
14.0 billion in cash and issued 149,387,617 shares of its Class C Common Stock to holders of its Class
V Common Stock in exchange for all outstanding shares of Class V Common Stock. As a result of the Class
V transaction, the tracking stock feature of the Company’s capital structure associated with the
Class V Common Stock was terminated. In November 2018,
four purported stockholders brought putative class action complaints arising out of
the Class V transaction. The actions were captioned Hallandale Beach Police and Fire Retirement Plan v.
Michael Dell et al. (Civil Action No. 2018-0816-JTL), Howard Karp v. Michael Dell et al. (Civil Action
No. 2019-0032-JTL), Miramar Police Officers’ Retirement Plan v. Michael Dell et al. (Civil Action
No. 2019-0049-JTL), and Steamfitters Local 449 Pension Plan v. Michael Dell et al. (Civil Action No.
2019-0115-JTL). The four actions were consolidated in the Delaware Chancery Court into In Re Dell Class
V Litigation (Consol. C.A. No. 2018-0816-JTL). The suit currently names as defendants Michael S. Dell
and certain of the other directors serving on the Board of Directors at the time of the Class V
transaction, certain stockholders of the Company, consisting of Michael S. Dell and Silver Lake Group
LLC and certain of its affiliated funds, and Goldman Sachs & Co. LLC (“Goldman Sachs”),
which served as financial advisor to the Company in connection with the Class V transaction. In an
amended complaint filed in August 2019, the plaintiffs generally allege that the director and
stockholder defendants breached their fiduciary duties under Delaware law to the former holders of Class
V Common Stock in connection with the Class V transaction by offering a transaction value that was
allegedly billions of dollars below the fair value. The plaintiffs contend that the offer understated
the value of shares surrendered by the former stockholders, which the plaintiffs allege should have
reflected higher alternative valuations, including a valuation related to the value of the shares of
VMware, Inc. common stock, and that the difference in values was wrongfully appropriated by the
stockholder defendants. On August 20, 2021, the plaintiffs added Goldman Sachs as a defendant and allege
that it aided and abetted the alleged primary violations. The Company is not a defendant in this action
but is subject to director indemnification provisions under its certificate of incorporation and bylaws,
and is a party to agreements with the defendants that contain indemnification obligations of the
Company, conditioned on the satisfaction of the requirements set forth in such agreements, relating to
service as a director, ownership of the Company’s securities, and provision of services, as
applicable. In the complaint, the plaintiffs seek, among other remedies, a judicial declaration that the
director and stockholder defendants breached their fiduciary duties. The plaintiffs also seek in the
complaint disgorgement of all profits, benefits, and other compensation obtained by the defendants as a
result of such alleged conduct and an award of unspecified damages, fees, and costs. The defendants
filed a motion to dismiss the action in September 2019. The court denied the motion in June 2020. The
plaintiffs and the defendants agreed to settle this
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
action,
subject to court approval, in November 2022. Under the terms of the settlement, the plaintiffs have
agreed to dismissal of all claims upon payment of a total of $1.0 billion (the “settlement amount”), which amount
will include all costs, expenses and fees of the plaintiff class relating to the action and its
resolution. The settlement terms provide that it is a condition of the settlement that the settlement
amount will be paid by the Company and/or the Company’s insurers on behalf of the defendants
pursuant to indemnification obligations of the Company to the defendants. A special committee of the
Company’s board of directors composed of directors who are not defendants, advised by independent
counsel, has informed the board of directors that the committee has determined that the director
defendants and the stockholder defendants are entitled to such indemnification. The Company is subject
to indemnification obligations pursuant to the provisions of the Delaware General Corporation Law, the
terms of the Company’s certificate of incorporation and bylaws, and agreements with the
defendants. The settlement is conditioned on final approval of the settlement by the court. If the court
does not grant final approval of the settlement and all of its material terms, or the settlement does
not otherwise become final or effective, proceedings in the action will continue. The hearing for final
approval of the settlement is scheduled for April 19, 2023. During the fiscal year ended February 3,
2023, the Company established a $1.0 billion liability on the Consolidated Statements of Financial
Position and recognized $1.0
billion expense within interest and other, net within the Consolidated Statements
of Income related to the settlement agreement. The Company expects to recover $106
million in insurance proceeds related to the settlement agreement, with cash
proceeds to be received upon payment of the settlement. The Company accounted for the expected insurance
proceeds as a loss recovery and recognized a benefit within interest and other, net within the
Consolidated Statements of Income and corresponding receivable on the Consolidated Statements of
Financial Position. Pending final approval of the settlement by the court, payment would be made in the
Company’s second quarter of Fiscal 2024.
Other
Litigation
— Dell does not currently anticipate that any of the other various legal proceedings it is
involved in will have a material adverse effect on its business, financial condition, results of
operations, or cash flows.
In
accordance with the relevant accounting guidance, the Company provides disclosures of matters where it
is at least reasonably possible that the Company could experience a material loss exceeding the amounts
already accrued for these or other proceedings or matters. In addition, the Company also discloses
matters based on its consideration of other matters and qualitative factors, including the experience of
other companies in the industry, and investor, customer, and employee relations considerations. As of
February 3, 2023, the Company does not believe there is a reasonable possibility that a material
loss exceeding the amounts already accrued for these or other proceedings or matters has been incurred.
However, since the ultimate resolution of any such proceedings and matters is inherently unpredictable,
the Company’s business, financial condition, results of operations, or cash flows could be
materially affected in any particular period by unfavorable outcomes in one or more of these proceedings
or matters. Whether the outcome of any claim, suit, assessment, investigation, or legal proceeding,
individually or collectively, could have a material adverse effect on the Company’s business,
financial condition, results of operations, or cash flows will depend on a number of factors, including
the nature, timing, and amount of any associated expenses, amounts paid in settlement, damages, or other
remedies or consequences.
Indemnifications
Obligations
In
the ordinary course of business, the Company enters into various contracts under which it may agree to
indemnify other parties for losses incurred from certain events as defined in the relevant contract,
such as litigation, regulatory penalties, or claims relating to past performance. Such indemnification
obligations may not be subject to maximum loss clauses. Historically, payments related to these
indemnification obligations have not been material to the Company.
Under
the Separation and Distribution Agreement described in Note 3 of the Notes to the Consolidated Financial
Statements, Dell Technologies has agreed to indemnify VMware, Inc., each of its subsidiaries and each of
their respective directors, officers, and employees from and against all liabilities relating to,
arising out of or resulting from, among other matters, the liabilities allocated to Dell Technologies as
part of the separation of Dell Technologies and VMware and their respective businesses as a result of
the VMware Spin-off (the “Separation”). VMware similarly has agreed to indemnify Dell
Technologies Inc., each of its subsidiaries and each of their respective directors, officers, and
employees from and against all liabilities relating to, arising out of or resulting from, among other
matters, the liabilities allocated to VMware as part of the Separation. Dell Technologies expects VMware
to fully perform under the terms of the Separation and Distribution Agreement.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For
information on the cross-indemnifications related to the tax matters agreement between the Company and
VMware described in Note 3 of the Notes to the Consolidated Financial Statements effective upon the
Separation on November 1, 2021, see Note 3 and Note 21 of the Notes to the Consolidated Financial
Statements.
Certain
Concentrations
The
Company maintains cash and cash equivalents, derivatives, and certain other financial instruments with
various financial institutions that potentially subject it to concentration of credit risk. As part of
its risk management processes, the Company performs periodic evaluations of the relative credit standing
of these financial institutions. The Company has not sustained material credit losses from instruments
held at these financial institutions. Further, the Company does not anticipate nonperformance by any of
the counterparties.
The
Company markets and sells its products and services to large corporate clients, governments, and health
care and education accounts, as well as to small and medium-sized businesses and individuals. No single
customer accounted for more than 10% of the Company’s consolidated net revenue during the fiscal
year ended February 3, 2023, January 28, 2022, and January 29, 2021.
The
Company utilizes a limited number of contract manufacturers that assemble a portion of its products. The
Company purchases components from suppliers and sells those components to such contract manufacturers.
The Company reflects the sale of such components by recognizing non-trade receivables from the contract
manufacturers and a reduction in inventory when title and risk of loss passes to the manufacturer. Cash
flows related to such transactions are recorded within cash flows from operating activities. The Company
does not reflect the sale of the components in revenue and does not recognize any profit on the
component sales until the related products are sold.
The agreements with the majority of the contract
manufacturers permit the Company to offset its payables against the receivables, thus mitigating the
credit risk wholly or in part. Receivables from the Company’s four largest contract manufacturers
represented the majority of the Company’s gross non-trade receivables of $3.3
billion and $5.7
billion as of February 3, 2023 and January 28, 2022, respectively. The
Company offset its corresponding payables against $2.5 billion and $4.2 billion of such receivables as of February 3,
2023 and January 28, 2022, respectively. The portion of receivables not offset is included in other
current assets in the Consolidated Statements of Financial Position.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
13 — INCOME AND OTHER TAXES
The
following table presents components of the income tax expense (benefit) for continuing operations
recognized for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
(in
millions) |
| Current:
|
|
|
|
|
|
|
Federal
|
$
|
605
|
|
|
$
|
166
|
|
|
$
|
(
514
) |
|
|
State/local
|
176
|
|
|
76
|
|
|
(
22) |
|
|
Foreign
|
739
|
|
|
960
|
|
|
825
|
|
|
Current
|
1,520
|
|
|
1,202
|
|
|
289
|
|
| Deferred:
|
|
|
|
|
|
|
Federal
|
(
483) |
|
|
(
54) |
|
|
(
16) |
|
|
State/local
|
(
103) |
|
|
—
|
|
|
(
115) |
|
|
Foreign
|
(
131) |
|
|
(
167) |
|
|
(
57) |
|
|
Deferred
|
(
717
) |
|
|
(
221
) |
|
|
(
188
) |
|
|
Income
tax expense |
$
|
803
|
|
|
$
|
981
|
|
|
$
|
101
|
|
The
following table presents components of income (loss) before income taxes for continuing operations
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
(in
millions) |
| Domestic
|
$
|
(
1,316)
|
|
|
$
|
1,414
|
|
|
$
|
(
1,361)
|
|
| Foreign
|
4,541
|
|
|
4,509
|
|
|
3,707
|
|
|
Income
before income taxes |
$
|
3,225
|
|
|
$
|
5,923
|
|
|
$
|
2,346
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents a reconciliation of the Company’s effective tax rate to the statutory
U.S. federal tax rate for continuing operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
| U.S.
federal statutory rate |
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
| State
income taxes, net of federal tax benefit |
2.0
|
|
|
1.7
|
|
|
(
3.5) |
|
| Tax
impact of foreign operations |
(
0.8) |
|
|
(
0.3) |
|
|
8.9
|
|
|
|
|
|
|
|
| Change
in valuation allowance |
0.4
|
|
|
0.4
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S.
tax audit settlement |
—
|
|
|
—
|
|
|
(
31.8) |
|
| Non-deductible
transaction-related costs |
0.8
|
|
|
1.2
|
|
|
1.0
|
|
| Stock-based
compensation expense |
(
2.4) |
|
|
(
2.4) |
|
|
(
3.2) |
|
| U.S.
R&D tax credits |
(
2.6) |
|
|
(
1.3) |
|
|
(
2.5) |
|
| Legal
entity restructuring |
—
|
|
|
(
4.1) |
|
|
—
|
|
| RSA
Security divestiture |
—
|
|
|
—
|
|
|
12.3
|
|
| Class
V transaction litigation settlement |
5.8
|
|
|
—
|
|
|
—
|
|
| Other
|
0.7
|
|
|
0.4
|
|
|
2.1
|
|
|
Total
|
24.9
|
%
|
|
16.6
|
%
|
|
4.3
|
%
|
Changes
to the Company’s effective tax rates for the fiscal years ended February 3, 2023,
January 28, 2022, and January 29, 2021 were primarily driven by items discrete to those years.
The Company’s effective tax rate for the fiscal year ended February 3, 2023 includes the
impact of a $0.9 billion expense
recognized in connection with an agreement to settle the Class V transaction litigation. The
Company’s effective tax rate for the fiscal year ended January 28, 2022 includes tax expense
of $1.0 billion on a pre-tax
gain of $4.0 billion related to the divestiture of Boomi during the period,
as well as tax benefits of $367 million on $
1.6 billion of debt extinguishment fees and $244 million related to the
restructuring of certain legal entities.
Other
changes to the Company’s effective income tax rates for the fiscal years ended February 3,
2023 as compared to January 28, 2022 were attributable to the tax impact of foreign operations,
which included the impacts of higher jurisdictional mix of income in lower tax jurisdictions and higher
tax benefits from foreign-derived intangible income offset by the impact of the capitalization of
research and development costs under the Tax Cuts and Jobs Act.
Under
the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, research and development costs
incurred for tax years beginning after December 31, 2021 must be capitalized and amortized ratably over
five or 15 years for tax purposes, depending on where the research activities were conducted.
The
differences between the Company’s effective income tax rates and the U.S. federal statutory rate
of 21% principally result from the geographical distribution of income, differences between the book and
tax treatment of certain items, and the tax items discussed above. In certain jurisdictions, the
Company’s tax rate is significantly less than the applicable statutory rate as a result of tax
holidays. The majority of the Company’s foreign income that is subject to these tax holidays is
attributable to Singapore and China. A significant portion of these income tax benefits relates to a tax
holiday that will be effective until January 31, 2029. The Company’s other tax holidays will
expire in whole or in part during fiscal years 2030 through 2031. Many of these tax holidays and reduced
tax rates may be extended when certain conditions are met or may be terminated early if certain
conditions are not met or as a result of changes in tax legislation. As of February 3, 2023, the
Company was not aware of any matters of noncompliance related to these tax holidays or enacted tax
legislative changes affecting these tax holidays. For the fiscal years ended February 3, 2023,
January 28, 2022, and January 29, 2021, the income tax benefits attributable to the tax status
of the affected subsidiaries were estimated to be approximately $123 million ($0.16
per share), $466 million ($0.59
per share), and $359 million ($0.47
per share), respectively. These income tax benefits are included in tax impact of foreign operations in
the table above.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
Company believes that a significant portion of the Company’s undistributed earnings as of
February 3, 2023 will not be subject to further U.S. federal taxation. As of February 3, 2023,
the Company has undistributed earnings of certain foreign subsidiaries of approximately $36.5 billion that remain indefinitely reinvested, and as such has
not recognized a deferred tax liability. Determination of the amount of unrecognized deferred income tax
liability related to these undistributed earnings is not practicable.
The
following table presents the components of the Company’s net deferred tax assets (liabilities)
as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
| Deferred
tax assets: |
|
|
|
|
Deferred
revenue and warranty provisions |
$
|
1,959
|
|
|
$
|
1,555
|
|
|
Provisions
for product returns and doubtful accounts |
85
|
|
|
95
|
|
|
Credit
carryforwards |
938
|
|
|
1,094
|
|
|
Loss
carryforwards |
467
|
|
|
379
|
|
|
Operating
and compensation related accruals |
506
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
Capitalized
research and development |
263
|
|
|
—
|
|
|
Other
|
332
|
|
|
301
|
|
|
Deferred
tax assets (a) |
4,550
|
|
|
3,936
|
|
|
Valuation
allowance |
(
1,535)
|
|
|
(
1,423)
|
|
|
Deferred
tax assets, net of valuation allowance |
3,015
|
|
|
2,513
|
|
| Deferred
tax liabilities: |
|
|
|
|
Leasing
and financing |
(
363) |
|
|
(
382) |
|
|
|
|
|
|
Property
and equipment |
(
470) |
|
|
(
452) |
|
|
Intangibles
|
(
483) |
|
|
(
673) |
|
|
Other
|
(
339
) |
|
|
(
363
) |
|
|
Deferred
tax liabilities (a) |
(
1,655)
|
|
|
(
1,870)
|
|
|
Net
deferred tax assets |
$
|
1,360
|
|
|
$
|
643
|
|
____________________
(a) Deferred
tax assets and deferred tax liabilities are included in other non-current assets and other
non-current liabilities, respectively, in the Consolidated Statements of Financial Position.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following tables present the net operating loss carryforwards, tax credit carryforwards, and other
deferred tax assets with related valuation allowances recognized as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
|
|
Deferred
Tax Assets |
|
Valuation
Allowance |
|
Net
Deferred Tax Assets |
|
First
Year Expiring |
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
| Credit
carryforwards |
$
|
938
|
|
|
$
|
(
935) |
|
|
$
|
3
|
|
|
Fiscal
2024 |
| Loss
carryforwards |
467
|
|
|
(
317) |
|
|
150
|
|
|
Fiscal
2024 |
| Other
deferred tax assets |
3,145
|
|
|
(
283) |
|
|
2,862
|
|
|
NA
|
|
Total
|
$
|
4,550
|
|
|
$
|
(
1,535)
|
|
|
$
|
3,015
|
|
|
|
|
|
|
|
|
|
|
|
|
January
28, 2022 |
|
|
|
Deferred
Tax Assets |
|
Valuation
Allowance |
|
Net
Deferred Tax Assets |
|
First
Year Expiring |
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
| Credit
carryforwards |
$
|
1,094
|
|
|
$
|
(
917) |
|
|
$
|
177
|
|
|
Fiscal
2023 |
| Loss
carryforwards |
379
|
|
|
(
276) |
|
|
103
|
|
|
Fiscal
2023 |
| Other
deferred tax assets |
2,463
|
|
|
(
230) |
|
|
2,233
|
|
|
NA
|
|
Total
|
$
|
3,936
|
|
|
$
|
(
1,423)
|
|
|
$
|
2,513
|
|
|
|
The
Company’s credit carryforwards as of February 3, 2023 and January 28, 2022 relate
primarily to U.S. tax credits and include state and federal tax credits associated with research and
development, as well as foreign tax credits associated with the U.S. Tax Cuts and Jobs Act. The more
significant amounts of the Company’s credit carryforwards will begin expiring in fiscal year 2028.
The Company assessed the realizability of these U.S. tax credits and has recorded a valuation allowance
against the credits it does not expect to utilize. The Company’s loss carryforwards as of
February 3, 2023 and January 28, 2022 include net operating loss carryforwards from federal,
state, and foreign jurisdictions. The valuation allowances for other deferred tax assets as of
February 3, 2023 and January 28, 2022 primarily relate to foreign jurisdictions, the changes
in which are included in tax impact of foreign operations in the Company’s effective tax
reconciliation. The Company has determined that it will be able to realize the remainder of its deferred
tax assets, based on the future reversal of deferred tax liabilities.
The
following table presents a reconciliation of the Company’s beginning and ending balances of
unrecognized tax benefits for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
(in
millions) |
| Beginning
Balance |
$
|
1,595
|
|
|
$
|
1,620
|
|
|
$
|
2,235
|
|
|
Increases
related to tax positions of the current year |
132
|
|
|
113
|
|
|
102
|
|
|
Increases
related to tax position of prior years |
181
|
|
|
143
|
|
|
385
|
|
|
Reductions
for tax positions of prior years |
(
46) |
|
|
(
153) |
|
|
(
673) |
|
|
Lapse
of statute of limitations |
(
41) |
|
|
(
78) |
|
|
(
27) |
|
|
Audit
settlements |
(
9) |
|
|
(
50) |
|
|
(
402) |
|
| Ending
Balance |
$
|
1,812
|
|
|
$
|
1,595
|
|
|
$
|
1,620
|
|
The
table does not include accrued interest and penalties of $394 million, $
383 million, and $
404 million as of
February 3, 2023, January 28, 2022, and January 29, 2021, respectively. Additionally, the
table does not include certain tax benefits associated with interest and state tax deductions and other
indirect jurisdictional effects of uncertain tax positions, which were $910 million, $817 million, and $835 million as of February 3, 2023, January 28, 2022,
and January 29, 2021, respectively.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
After
taking these items into account, the Company’s net unrecognized tax benefits were $1.3 billion, $
1.2 billion, and $
1.2 billion as of
February 3, 2023, January 28, 2022, and January 29, 2021, respectively, and are included
in other non-current liabilities in
the Consolidated Statements of Financial Position.
The
unrecognized tax benefits in the table above include $1.1 billion, $0.9 billion, and $0.9 billion as of February 3, 2023,
January 28, 2022, and January 29, 2021, respectively, that, if recognized, would have impacted
income tax expense. Interest and penalties related to income tax liabilities are included in income tax
expense. The Company recorded tax expense for interest and penalties of $16 million for the fiscal
year ended February 3, 2023, and tax benefit of $14 million and $
247 million for the fiscal
years ended January 28, 2022 and January 29, 2021, respectively.
The
Internal Revenue Service is currently conducting tax examinations of the Company for fiscal years 2015
through 2019. The Company is also currently under income tax audits in various U.S. state and foreign
taxing jurisdictions. The Company is undergoing negotiations, and in some cases contested proceedings,
relating to tax matters with the taxing authorities in these jurisdictions. The Company believes that it
has provided adequate reserves related to all matters contained in tax periods open to examination.
Although the Company believes it has made adequate provisions for the uncertainties surrounding these
audits, should the Company experience unfavorable outcomes, such outcomes could have a material impact
on its results of operations, financial position, and cash flows. With respect to major U.S. state and
foreign taxing jurisdictions, the Company is generally not subject to tax examinations for years prior
to the fiscal year ended January 29, 2010.
Judgment
is required in evaluating the Company’s uncertain tax positions and determining the
Company’s provision for income taxes. The Company does not expect a significant change to the
total amount of unrecognized tax benefits within the next twelve months.
The
Company takes certain non-income tax positions in the jurisdictions in which it operates and has
received certain non-income tax assessments from various jurisdictions. The Company believes that a
material loss in these matters is not probable and that it is not reasonably possible that a material
loss exceeding amounts already accrued has been incurred. The Company believes its positions in
these non-income tax litigation matters are supportable and that it ultimately will prevail in the
matters. In the normal course of business, the Company’s positions and conclusions related to its
non-income taxes could be challenged and assessments may be made. To the extent new information is
obtained and the Company’s views on its positions, probable outcomes of assessments, or litigation
change, changes in estimates to the Company’s accrued liabilities would be recorded in the period
in which such a determination is made. In the resolution process for income tax and non-income tax
audits, the Company is required in certain situations to provide collateral guarantees or
indemnification to regulators and tax authorities until the matter is resolved.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
14 — ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS)
Accumulated
other comprehensive income (loss) is presented in stockholders’ equity (deficit) in the
Consolidated Statements of Financial Position and consists of amounts related to foreign currency
translation adjustments, unrealized net gains (losses) on cash flow hedges, and actuarial net gains
(losses) from pension and other postretirement plans.
The
following table presents changes in accumulated other comprehensive income (loss), net of tax, by
the following components as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation Adjustments |
|
|
|
Cash
Flow Hedges |
|
Pension
and Other Postretirement Plans |
|
Accumulated
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Balances
as of January 31, 2020 |
$
|
(
678) |
|
|
|
|
$
|
14
|
|
|
$
|
(
45) |
|
|
$
|
(
709) |
|
|
Other
comprehensive income (loss) before reclassifications |
528
|
|
|
|
|
(
200) |
|
|
(
38) |
|
|
290
|
|
|
Amounts
reclassified from accumulated other comprehensive income (loss) |
—
|
|
|
|
|
100
|
|
|
5
|
|
|
105
|
|
|
Total
change for the period |
528
|
|
|
|
|
(
100) |
|
|
(
33) |
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
| Balances
as of January 29, 2021 |
$
|
(
150) |
|
|
|
|
$
|
(
86) |
|
|
$
|
(
78) |
|
|
$
|
(
314) |
|
|
Other
comprehensive income (loss) before reclassifications |
(
385) |
|
|
|
|
374
|
|
|
37
|
|
|
26
|
|
|
Amounts
reclassified from accumulated other comprehensive income (loss) |
—
|
|
|
|
|
(
158) |
|
|
7
|
|
|
(
151) |
|
|
Spin-off
of VMware |
9
|
|
|
|
|
(
1) |
|
|
—
|
|
|
8
|
|
|
Total
change for the period |
(
376) |
|
|
|
|
215
|
|
|
44
|
|
|
(
117) |
|
|
|
|
|
|
|
|
|
|
|
| Balances
as of January 28, 2022 |
$
|
(
526) |
|
|
|
|
$
|
129
|
|
|
$
|
(
34) |
|
|
$
|
(
431) |
|
|
Other
comprehensive income (loss) before reclassifications |
(
222) |
|
|
|
|
354
|
|
|
1
|
|
|
133
|
|
|
Amounts
reclassified from accumulated other comprehensive income (loss) |
—
|
|
|
|
|
(
705) |
|
|
1
|
|
|
(
704) |
|
|
Total
change for the period |
(
222) |
|
|
|
|
(
351) |
|
|
2
|
|
|
(
571) |
|
|
Less:
Change in comprehensive (loss) attributable to non-controlling interests |
(
1) |
|
|
|
|
—
|
|
|
—
|
|
|
(
1) |
|
| Balances
as of February 3, 2023 |
$
|
(
747) |
|
|
|
|
$
|
(
222) |
|
|
$
|
(
32) |
|
|
$
|
(
1,001)
|
|
Amounts
related to the Company’s cash flow hedges are reclassified to net income during the same period in
which the items being hedged are recognized in earnings. See Note 9 of the Notes to the Consolidated
Financial Statements for more information on the Company’s derivative instruments.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents reclassifications out of accumulated other comprehensive income (loss), net
of tax, to net income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
February
3, 2023 |
|
|
|
January
28, 2022 |
|
|
|
Cash
Flow Hedges |
|
Pensions
|
|
Total
|
|
|
|
Cash
Flow Hedges |
|
Pensions
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Total
reclassifications, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue |
|
|
$
|
736
|
|
|
$
|
—
|
|
|
$
|
736
|
|
|
|
|
$
|
158
|
|
|
$
|
—
|
|
|
$
|
158
|
|
|
Cost
of net revenue |
|
|
(
31) |
|
|
—
|
|
|
(
31) |
|
|
|
|
(
3) |
|
|
—
|
|
|
(
3) |
|
|
Operating
expenses |
|
|
—
|
|
|
(
1)
|
|
|
(
1)
|
|
|
|
|
—
|
|
|
(
7)
|
|
|
(
7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
Total
reclassifications, net of tax |
|
|
$
|
705
|
|
|
$
|
(
1)
|
|
|
$
|
704
|
|
|
|
|
$
|
158
|
|
|
$
|
(
7)
|
|
|
$
|
151
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
15 — CAPITALIZATION
The
following table presents the Company’s authorized, issued, and outstanding common stock as of
the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
Issued
|
|
Outstanding
|
|
|
|
|
|
|
|
(in
millions) |
| Common
stock as of February 3, 2023 |
|
Class
A |
600
|
|
|
379
|
|
|
379
|
|
|
Class
B |
200
|
|
|
95
|
|
|
95
|
|
|
Class
C |
7,900
|
|
|
324
|
|
|
242
|
|
|
Class
D |
100
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
8,800
|
|
|
798
|
|
|
716
|
|
|
|
|
|
|
|
| Common
stock as of January 28, 2022 |
|
Class
A |
600
|
|
|
379
|
|
|
379
|
|
|
Class
B |
200
|
|
|
95
|
|
|
95
|
|
|
Class
C |
7,900
|
|
|
303
|
|
|
283
|
|
|
Class
D |
100
|
|
|
—
|
|
|
—
|
|
|
Class
V |
343
|
|
|
—
|
|
|
—
|
|
|
9,143
|
|
|
777
|
|
|
757
|
|
On
June 29, 2022, the authorized capital stock provisions of the Company’s certificate of
incorporation were amended to eliminate the Class V Common Stock as the fifth authorized series of Dell
Technologies common stock. In connection with the elimination of authorized Class V Common Stock, the
Company’s certificate of incorporation also was amended to decrease by 343 million shares the total number of shares of common
stock which Dell Technologies is authorized to issue.
Preferred
Stock
The
Company is authorized to issue one
million shares of preferred stock, par value $0.01
per share. As of February 3, 2023 and January 28, 2022,
no
shares of preferred stock were issued or outstanding.
Common
Stock
Dell
Technologies Common Stock —
The Class A Common Stock, the Class B Common Stock, the Class C Common Stock, and the Class D Common
Stock are collectively referred to as Dell Technologies Common Stock. The par value for all series of
Dell Technologies Common Stock is $0.01 per
share. The Class A Common Stock, the Class B Common Stock, the Class C Common Stock, and the Class D
Common Stock share equally in dividends declared or accumulated and have equal participation rights in
undistributed earnings.
Voting
Rights
— Each holder of record of (a) Class A Common Stock is entitled to ten
votes per share of Class A Common Stock; (b) Class B Common Stock is entitled to
ten votes per share of Class B Common Stock; (c) Class C
Common Stock is entitled to one
vote per share of Class C Common Stock; and (d) Class D Common Stock is not
entitled to any vote on any matter except to the extent required by provisions of Delaware law (in which
case such holder is entitled to one
vote per share of Class D Common Stock).
Conversion
Rights
— Under the Company’s certificate of incorporation, at any time and from time to time, any
holder of Class A Common Stock or Class B Common Stock has the right to convert all or any of the
shares of Class A Common Stock or Class B Common Stock, as applicable, held by such holder into
shares of Class C Common Stock on a one
-to-one basis.
During
the fiscal year ended February 3, 2023, there were no conversions of shares of Class A Common Stock
or Class B Common Stock into shares of Class C Common Stock.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
During
the fiscal year ended January 28, 2022, the Company issued an aggregate of
5,985,573 shares of Class C Common Stock to stockholders upon their conversion of
the same number of shares of Class A Common Stock into Class C Common Stock in accordance with the
Company’s certificate of incorporation.
During
the fiscal year ended January 29, 2021, the Company issued
6,334,990 shares of Class C Common Stock to stockholders upon their conversion of
the same number of shares of Class B Common Stock into Class C Common Stock in accordance with the
Company’s certificate of incorporation.
Dividends
On
February 24, 2022, the Company announced that its Board of Directors adopted a dividend policy providing
for payment by the Company of quarterly cash dividends on the outstanding Dell Technologies Common Stock
at a rate of $0.33 per
share per fiscal quarter beginning in the first quarter of Fiscal 2023. On March 2, 2023, the Company
announced that the Board of Directors approved a 12%
increase in the quarterly dividend rate to a rate of $0.37 per
share per fiscal quarter beginning in the first quarter of Fiscal 2024.
The
Company paid the following dividends during the fiscal year ended February 3, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Declaration
Date |
|
Record
Date |
|
Payment
Date |
|
Dividend
per Share |
|
Amount
(in
millions)
|
|
February
24, 2022 |
|
April
20, 2022 |
|
April
29, 2022 |
|
$
|
0.33
|
|
|
$
|
248
|
|
| June
7, 2022 |
|
July
20, 2022 |
|
July
29, 2022 |
|
$
|
0.33
|
|
|
$
|
242
|
|
| September
6, 2022 |
|
October
19, 2022 |
|
October
28, 2022 |
|
$
|
0.33
|
|
|
$
|
238
|
|
| December
6, 2022 |
|
January
25, 2023 |
|
February
3, 2023 |
|
$
|
0.33
|
|
|
$
|
236
|
|
Repurchases
of Common Stock
Effective
as of September 23, 2021, the Company’s Board of Directors approved a stock repurchase program
under which the Company is authorized to repurchase up to $5 billion of shares of the Company’s Class C Common Stock
with no fixed expiration date. During the fiscal year ended February 3, 2023, the Company
repurchased approximately 62
million shares of Class C Common Stock for a total purchase price of
approximately $2.8 billion. During the fiscal year ended January 28, 2022,
the Company repurchased approximately 12
million shares of Class C Common Stock for a total purchase price of
approximately $659 million.
The above repurchases of Class C Common Stock
exclude shares withheld from stock awards to settle employee tax withholding obligations related to the
vesting of such awards.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
16 — EARNINGS PER SHARE
Basic
earnings per share is based on the weighted-average effect of all common shares issued and outstanding
and is calculated by dividing net income by the weighted-average shares outstanding during the period.
Diluted earnings per share is calculated by dividing net income by the weighted-average number of common
shares used in the basic earnings per share calculation plus the number of common shares that would be
issued assuming exercise or conversion of all potentially dilutive instruments. The Company excludes
equity instruments from the calculation of diluted earnings per share if the effect of including such
instruments is antidilutive.
The
following table presents basic and diluted earnings per share for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
| Earnings
per share attributable to Dell Technologies Inc. — basic |
|
Continuing
operations |
|
|
|
|
$
|
3.33
|
|
|
$
|
6.49
|
|
|
$
|
3.02
|
|
|
Discontinued
operations |
|
|
|
|
$
|
—
|
|
|
$
|
0.81
|
|
|
$
|
1.35
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings
per share attributable to Dell Technologies Inc. — diluted |
|
Continuing
operations |
|
|
|
|
$
|
3.24
|
|
|
$
|
6.26
|
|
|
$
|
2.93
|
|
|
Discontinued
operations |
|
|
|
|
$
|
—
|
|
|
$
|
0.76
|
|
|
$
|
1.29
|
|
The
following table presents the computation of basic and diluted earnings per share for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Numerator:
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Dell Technologies Inc. from continuing operations - basic and
diluted |
|
|
|
|
$
|
2,442
|
|
|
$
|
4,948
|
|
|
$
|
2,249
|
|
|
|
|
|
|
|
|
|
|
|
| Numerator:
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net of income taxes - basic |
|
|
|
|
$
|
—
|
|
|
$
|
615
|
|
|
$
|
1,001
|
|
|
Incremental
dilution from VMware, Inc. (a) |
|
|
|
|
—
|
|
|
(
7) |
|
|
(
13) |
|
|
Income
from discontinued operations, net of income taxes, attributable to Dell Technologies
Inc. - diluted |
|
|
|
|
$
|
—
|
|
|
$
|
608
|
|
|
$
|
988
|
|
|
|
|
|
|
|
|
|
|
|
| Denominator:
Dell Technologies Common Stock weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding —
basic
|
|
|
|
|
734
|
|
|
762
|
|
|
744
|
|
|
Dilutive
effect of options, restricted stock units, restricted stock, and other |
|
|
|
|
19
|
|
|
29
|
|
|
23
|
|
|
Weighted-average
shares outstanding —
diluted
|
|
|
|
|
753
|
|
|
791
|
|
|
767
|
|
|
Weighted-average
shares outstanding —
antidilutive
|
|
|
|
|
9
|
|
|
—
|
|
|
—
|
|
____________________
(a) The
incremental dilution from VMware, Inc. represents the impact of VMware, Inc.’s dilutive
securities on diluted earnings per share of Dell Technologies Common Stock, and is calculated by
multiplying the difference between VMware, Inc.’s basic and diluted earnings (loss) per share
by the number of shares of VMware, Inc. common stock held by the Company before the VMware
Spin-off.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
17 — STOCK-BASED COMPENSATION
Stock-Based
Compensation Expense
The
following table presents stock-based compensation expense recognized in the Consolidated Statements
of Income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
(in
millions) |
| Stock-based
compensation expense: |
|
|
|
|
|
|
Cost
of net revenue |
$
|
152
|
|
|
$
|
133
|
|
|
$
|
75
|
|
|
Operating
expenses |
779
|
|
|
675
|
|
|
412
|
|
|
Stock-based
compensation expense from continuing operations before taxes |
931
|
|
|
808
|
|
|
487
|
|
|
Stock-based
compensation expense from discontinued operations before taxes (a) |
—
|
|
|
814
|
|
|
1,122
|
|
|
Total
stock-based compensation expense before taxes |
931
|
|
|
1,622
|
|
|
1,609
|
|
|
Income
tax benefit |
(
163) |
|
|
(
296) |
|
|
(
313) |
|
|
Total
stock-based compensation expense, net of income taxes |
$
|
768
|
|
|
$
|
1,326
|
|
|
$
|
1,296
|
|
____________________
(a) Stock-based
compensation expense from discontinued operations before taxes represents VMware stock-based
compensation expense and is included in income from discontinued operations, net of taxes, on the
Consolidated Statements of Income for periods prior to the VMware Spin-off.
Dell
Technologies Inc. Stock-Based Compensation Plan
Dell
Technologies Inc. 2013 Stock Incentive Plan
—
Employees,
consultants, non-employee directors, and other service providers of the Company or its affiliates are
eligible to participate in the Dell Technologies Inc. 2013 Stock Incentive Plan, as amended and restated
as of July 9, 2019 (the “2013 Plan”). The 2013 Plan authorizes the Company to grant stock
options, restricted stock units (“RSUs”), stock appreciation rights (“SARs”),
restricted stock awards, and dividend equivalents. Stock options have been granted with option exercise
prices equal to the fair market value of the Company’s Class C Common Stock and expire
ten years after the grant date.
The
2013 Plan authorizes the issuance of an aggregate of 165.5 million shares of the
Class C Common Stock, including 55.0 million shares
automatically added to the share pool pursuant to the equitable adjustment provisions relating to the
VMware Spin-off. As of February 3, 2023, there were approximately 28 million shares of Class C
Common Stock available for future grants under the 2013 Plan.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock
Option Activity —
The following table presents stock option activity settled in Dell Technologies Common Stock for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Options |
|
Weighted-Average
Exercise Price |
|
Weighted-Average
Remaining Contractual Term |
|
Aggregate
Intrinsic Value (a) |
|
(in
millions) |
|
(per
share) |
|
(in
years) |
|
(in
millions) |
| Options
outstanding as of January 31, 2020 |
18
|
|
|
$
|
14.82
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
(
12) |
|
|
14.32
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
|
Canceled/expired
|
—
|
|
|
—
|
|
|
|
|
|
| Options
outstanding as of January 29, 2021 |
6
|
|
|
15.87
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
VMware
Spin-off adjustment (b) |
2
|
|
|
NA
|
|
|
|
|
|
Exercised
|
(
5) |
|
|
13.36
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
|
Canceled/expired
|
—
|
|
|
—
|
|
|
|
|
|
| Options
outstanding as of January 28, 2022 |
3
|
|
|
9.62
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
(
1) |
|
|
6.99
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
|
Canceled/expired
|
—
|
|
|
—
|
|
|
|
|
|
| Options
outstanding as of February 3, 2023 (c) |
2
|
|
|
$
|
10.29
|
|
|
2.5
|
|
$
|
69
|
|
| Exercisable
as of February 3, 2023 |
2
|
|
|
$
|
10.43
|
|
|
2.0
|
|
$
|
65
|
|
| Vested
and expected to vest (net of estimated forfeitures) as of February 3, 2023 |
2
|
|
|
$
|
10.32
|
|
|
2.4
|
|
$
|
69
|
|
____________________
(a) The
aggregate intrinsic values represent the total pre-tax intrinsic values based on the closing price
of $42.24 of the
Class C Common Stock on February 3, 2023 as reported on the NYSE that would have been received
by the option holders had all in-the-money options been exercised as of that date.
(b) In
connection with the VMware Spin-off, and as authorized by the 2013 Plan, Dell Technologies made
certain adjustments to the number of stock options and the exercise price of unexercised stock
options using a conversion ratio of approximately 1.97 to 1 to preserve the intrinsic value of the awards prior to
the VMware Spin-off.
(c) The
ending weighted-average exercise price was calculated based on underlying options outstanding as of
February 3, 2023.
The
total fair value of options vested was
no
t material for the fiscal years ended February 3, 2023, January 28, 2022, and
January 29, 2021. The pre-tax intrinsic value of the options exercised was $35 million, $340 million, and $
591 million for the fiscal years
ended February 3, 2023, January 28, 2022, and January 29, 2021, respectively. Cash
proceeds from the exercise of stock options was $
5 million, $
62 million, and $
179 million for the fiscal years ended February 3, 2023, January 28,
2022, and January 29, 2021, respectively.
The
tax benefit realized from the exercise of stock options was $8 million, $76 million, and $139 million for the fiscal years
ended February 3, 2023, January 28, 2022, and January 29, 2021, respectively.
Restricted
Stock —
The Company’s restricted stock primarily consists of RSUs granted to employees. During the fiscal
years ended February 3, 2023, January 28, 2022, and January 29, 2021, the Company granted
long-term incentive awards in the form of service-based RSUs and performance-based RSUs
(“PSUs”) in order to align critical talent retention programs with the interests of holders
of the Class C Common Stock.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Service-based
RSUs have a fair value based on the closing price of the Class C Common Stock price as reported on the
NYSE on the grant date or the trade day immediately preceding the grant date, if the grant date falls on
a non-trading day. The majority of such RSUs vest ratably over a three-year period. Each service-based
RSU represents the right to acquire one share of Class C Common Stock
upon vesting.
The
PSUs granted during the periods presented are reflected as target units for performance periods not yet
complete. The actual number of units that ultimately vest will range from 0% to 200% of target, based on the level of achievement of the
performance goals and continued employment with the Company over a three-year performance period. Approximately
half of the PSUs granted are subject to achievement of market-based performance goals based on relative
total shareholder return and were valued utilizing a Monte Carlo valuation model to simulate the
probabilities of achievement. The remaining PSUs are subject to internal financial measures and have
fair values based on the closing price of the Class C Common Stock as reported on the NYSE on the
accounting grant date.
Beginning
with grants made during the fiscal year ended February 3, 2023, dividend equivalents will accrue on
outstanding RSUs and PSUs when a dividend is paid to the Company’s common stockholders. Accrued
dividend equivalents will be paid when the underlying RSUs and PSUs vest.
The
following table presents the assumptions utilized in the Monte Carlo valuation model for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
| Weighted-average
grant date fair value (a) |
$
|
73.26
|
|
|
$
|
134.01
|
|
|
$
|
40.01
|
|
| Term
(in years) |
3
|
|
3
|
|
3
|
| Risk-free
rate (U.S. Government Treasury Note) |
2.0
|
%
|
|
0.3
|
%
|
|
0.6
|
%
|
| Expected
volatility |
39
|
%
|
|
43
|
%
|
|
47
|
%
|
| Expected
dividend yield |
—
|
%
|
|
—
|
%
|
|
—
|
%
|
____________________
(a) Weighted-average
grant date fair value for periods prior to the completion of the VMware Spin-off is calculated using
pre-spin off stock prices and has not been adjusted to reflect the impact of the conversion ratio on
the Class C Common Stock.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents restricted stock and restricted stock units activity settled
in Dell Technologies Common Stock for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Units |
|
Weighted-Average
Grant Date Fair Value |
|
Aggregate
Intrinsic Value (a) |
|
(in
millions) |
|
(per
unit) |
|
|
| Outstanding
as of January 31, 2020 |
16
|
|
|
$
|
50.78
|
|
|
|
|
Granted
|
25
|
|
|
39.14
|
|
|
|
|
Vested
|
(
5) |
|
|
48.15
|
|
|
|
|
Forfeited
|
(
3) |
|
|
41.56
|
|
|
|
| Outstanding
as of January 29, 2021 |
33
|
|
|
43.09
|
|
|
|
|
Granted
|
13
|
|
|
88.13
|
|
|
|
|
VMware
Spin-off adjustment (b) |
30
|
|
|
NA
|
|
|
|
Vested
|
(
13) |
|
|
39.33
|
|
|
|
|
Forfeited
|
(
4) |
|
|
46.27
|
|
|
|
| Outstanding
as of January 28, 2022 |
59
|
|
|
31.67
|
|
|
|
|
Granted
|
23
|
|
|
48.11
|
|
|
|
|
Vested
|
(
27) |
|
|
29.96
|
|
|
|
|
Forfeited
|
(
5) |
|
|
39.26
|
|
|
|
| Outstanding
as of February 3, 2023 (c) |
50
|
|
|
$
|
39.44
|
|
|
$
|
2,110
|
|
| Vested
and expected to vest, February 3, 2023 |
48
|
|
|
$
|
38.97
|
|
|
$
|
2,008
|
|
____________________
(a) The
aggregate intrinsic value represents the total pre-tax intrinsic values based on the closing price
of $42.24 of the
Class C Common Stock on February 3, 2023 as reported on the NYSE that would have been received
by the RSU holders had the RSUs been issued as of February 3, 2023.
(b) In
connection with the VMware Spin-off, and as authorized by the 2013 Plan, Dell Technologies made
certain adjustments to the number of RSUs using a conversion ratio of approximately 1.97 to 1 to preserve the intrinsic value of the awards prior to
the VMware Spin-off.
(c) As
of February 3, 2023, the 50 million units outstanding
included 38 million RSUs and
12 million PSUs.
The
total fair value of restricted stock that vested during the fiscal years ended February 3, 2023,
January 28, 2022, and January 29, 2021 was $827 million, $493 million, and $
235 million, respectively, with
a pre-tax intrinsic value of $1,371 million, $1,097 million, and $
226 million,
respectively.
As
of February 3, 2023, there was $953 million of unrecognized
stock-based compensation expense, net of estimated forfeitures, related to these awards expected to be
recognized over a weighted-average period of approximately 1.8 years.
Dell
Technologies Shares Withheld for Taxes —
Beginning in the fiscal year ended February 3, 2023, shares of Class C Common Stock are generally
withheld from issuance to cover employee taxes for the vesting of restricted stock units. During the
fiscal years ended January 28, 2022 and January 29, 2021, shares of Class C Common Stock were
withheld from issuance to cover employee taxes for both the vesting of restricted stock units and the
exercise of stock options only under certain situations. For the fiscal years ended February 3,
2023, January 28, 2022, and January 29, 2021, 8 million, 0.4 million, and 0.1 million shares, respectively, were withheld to cover $
388 million, $40 million, and $1 million, respectively, of employees’ tax obligations.
The value of the withheld shares was classified as a reduction to common stock and capital in excess of
par value.
Other
Plans
In addition to the 2013 Plan described above, the
Company’s consolidated subsidiary, Secureworks, maintains its own equity plan and issues equity
grants settling in its own Class A common stock. The stock option and restricted stock unit activity
under this plan was not material during the fiscal years ended February 3, 2023, January 28,
2022, and January 29, 2021.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 18 — RETIREMENT PLAN BENEFITS
Defined
Benefit Retirement Plans
The
Company sponsors retirement plans for certain employees in the United States and internationally, some
of which meet the criteria of a defined benefit retirement plan. Benefits under defined benefit
retirement plans guarantee a particular payment to the employee in retirement. The amount of retirement
benefit is defined by the plan and is typically a function of the number of years of service rendered by
the employee and the employee’s average salary or salary at retirement. The annual costs of the
plans are determined using the projected unit credit actuarial cost method that includes actuarial
assumptions and estimates which are subject to change.
U.S.
Pension Plan
— The Company sponsors a noncontributory defined benefit retirement plan in the United States (the
“U.S. pension plan”) which was assumed in connection with the EMC merger transaction. As of
December 1999, the U.S. pension plan was frozen, so employees no longer accrue retirement benefits for
future services. The measurement date for the U.S. pension plan is the end of the Company’s fiscal
year. The Company did not make any significant contributions to the U.S. pension plan for the fiscal
years ended February 3, 2023, January 28, 2022, and January 29, 2021, and does not expect
to make any significant contributions in Fiscal 2024.
Net
periodic benefit costs related to the U.S. pension plan were immaterial for the fiscal years ended
February 3, 2023, January 28, 2022, and January 29, 2021.
The
following table presents attributes of the U.S. pension plan as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
| Plan
assets at fair value (a) |
$
|
439
|
|
|
$
|
550
|
|
| Benefit
obligations |
(
484) |
|
|
(
582) |
|
|
Underfunded
position (b) |
$
|
(
45) |
|
|
$
|
(
32) |
|
____________________
(a) Plan
assets are managed by outside investment managers. The Company’s investment strategy with
respect to plan assets is to achieve a long-term growth of capital, consistent with an appropriate
level of risk. Assets are recognized at fair value and are primarily classified within Level 2 of
the fair value hierarchy.
(b) The
underfunded position of the U.S. pension plan is recognized in other non-current liabilities in the
Consolidated Statements of Financial Position.
As
of February 3, 2023, future benefit payments for the U.S. pension plan are expected to be paid as
follows: $36 million in Fiscal 2024; $
37 million in Fiscal 2025; $38 million in Fiscal 2026; $38 million in Fiscal 2027; $38 million in Fiscal 2028; and $182 million thereafter.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
International
Pension Plans
—
The Company also sponsors retirement plans outside of the United States which qualify as defined benefit
plans. The following table presents attributes of the
international pension plans as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
| Plan
assets at fair value (a) |
$
|
221
|
|
|
$
|
245
|
|
| Benefit
obligations |
(
423) |
|
|
(
479) |
|
|
Underfunded
position (b) |
$
|
(
202) |
|
|
$
|
(
234) |
|
____________________
(a) Plan
assets are managed by outside investment managers. The Company’s investment strategy with
respect to plan assets is to achieve a long-term growth of capital, consistent with an appropriate
level of risk. Assets are recognized at fair value and are primarily classified within Level 1 of
the fair value hierarchy.
(b) The underfunded
position is recognized in other non-current liabilities in the Consolidated Statements of Financial
Position.
Defined
Contribution Retirement Plans
Dell
401(k) Plan —
The Company has a defined contribution retirement plan (the “Dell 401(k) Plan”) that
complies with Section 401(k) of the Internal Revenue Code. Only U.S. employees and employees of certain
subsidiaries, except those who are covered by a collective bargaining agreement, classified as a leased
employee or a nonresident alien, or are covered under a separate plan, are eligible to participate in
the Dell 401(k) Plan. Participation in the Dell 401(k) Plan is at the election of the employee. As of
February 3, 2023, the Company matched 100% of each participant’s voluntary contributions (the
“Dell 401(k) employer match”), subject to a maximum contribution of 6
% of the participant’s eligible compensation, up to an annual limit of $
7,500, and participants vest
immediately in all contributions to the Dell 401(k) Plan. On June 1, 2020, the Company suspended the
Dell 401(k) employer match for U.S. employees as a precautionary measure to preserve financial
flexibility in light of COVID-19. Effective January 1, 2021, the Dell 401(k) employer match was
reinstated, with no change to the employer match policy or participant eligibility requirements.
The Company’s matching contributions as well
as participants’ voluntary contributions are invested according to each participant’s
elections in the investment options provided under the Dell 401(k) Plan. The Company’s
contributions during the fiscal years ended February 3, 2023, January 28, 2022, and
January 29, 2021 were $263 million, $249 million, and $154 million, respectively.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
19 — SEGMENT INFORMATION
The
Company has two
reportable segments that are based on the following business units: Infrastructure
Solutions Group (“ISG”) and Client Solutions Group (“CSG”).
ISG
enables the Company’s customers’ digital transformation with solutions that address the
fundamental shift to multicloud environments, machine learning, artificial intelligence, and data
analytics. The Company’s comprehensive storage portfolio includes traditional as well as
next-generation storage solutions, including all-flash arrays, scale-out file, object platforms,
hyperconverged infrastructure, and software-defined storage. The Company’s server portfolio
includes high-performance rack, blade, and tower servers. The ISG networking portfolio helps the
Company’s business customers transform and modernize their infrastructure, mobilize and enrich
end-user experiences, and accelerate business applications and processes. ISG also offers attached
software, peripherals, and services, including support and deployment, configuration, and extended
warranty services.
CSG
includes sales to commercial and consumer customers of branded hardware (such as desktops, workstations,
and notebooks) and branded peripherals (such as displays, docking stations, and other electronics), as
well as third-party software and peripherals. CSG also includes services offerings, including support
and deployment, configuration, and extended warranty services.
The
reportable segments disclosed herein are based on information reviewed by the Company’s management
to evaluate the business segment results. The Company’s measure of segment revenue and segment
operating income for management reporting purposes excludes operating results of other businesses,
unallocated corporate transactions, the impact of purchase accounting, amortization of intangible
assets, transaction-related expenses, stock-based compensation expense, and other corporate expenses, as
applicable. The Company does not allocate assets to the above reportable segments for internal reporting
purposes.
As
described in Note 1 and Note 3 of the Notes to the Consolidated Financial Statements, the Company
completed the VMware Spin-off on November 1, 2021.
Pursuant
to the CFA described in such Notes, Dell Technologies continues to act as a distributor of
VMware’s standalone products and services and purchase such products and services for resale to
end-user customers (“VMware Resale”). Dell Technologies also continues to integrate
VMware’s products and services with Dell Technologies’ offerings and sell them to end users.
The results of such operations are classified as continuing operations within the Company’s
Consolidated Statements of Income. The results of standalone VMware Resale transactions are reflected in
other businesses. The results of integrated offering transactions are reflected within CSG or ISG,
depending upon the nature of the underlying offering sold. The Company's prior period segment results
have been recast to reflect this change.
In
accordance with applicable accounting guidance, the results of VMware, excluding Dell's resale of VMware
offerings, are presented as discontinued operations in the Consolidated Statements of Income and, as
such, have been excluded from both continuing operations and segment results for periods presented prior
to the completion of the VMware Spin-off.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents a reconciliation of net revenue by the Company’s reportable segments
to the Company’s consolidated net revenue as well as a reconciliation of segment operating
income to the Company’s consolidated operating income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Consolidated
net revenue: |
|
|
|
|
|
|
|
|
|
| Infrastructure
Solutions Group |
|
|
|
|
$
|
38,356
|
|
|
$
|
34,366
|
|
|
$
|
33,002
|
|
| Client
Solutions Group |
|
|
|
|
58,213
|
|
|
61,464
|
|
|
48,387
|
|
|
Reportable
segment net revenue |
|
|
|
|
96,569
|
|
|
95,830
|
|
|
81,389
|
|
|
Other
businesses (a) (b) |
|
|
|
|
5,721
|
|
|
5,388
|
|
|
5,382
|
|
|
Unallocated
transactions (c) |
|
|
|
|
11
|
|
|
11
|
|
|
5
|
|
|
Impact
of purchase accounting (d) |
|
|
|
|
—
|
|
|
(
32)
|
|
|
(
106)
|
|
|
Total
consolidated net revenue |
|
|
|
|
$
|
102,301
|
|
|
$
|
101,197
|
|
|
$
|
86,670
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated
operating income: |
|
|
|
|
|
|
|
|
|
| Infrastructure
Solutions Group |
|
|
|
|
$
|
5,045
|
|
|
$
|
3,736
|
|
|
$
|
3,753
|
|
| Client
Solutions Group |
|
|
|
|
3,824
|
|
|
4,365
|
|
|
3,333
|
|
|
Reportable
segment operating income |
|
|
|
|
8,869
|
|
|
8,101
|
|
|
7,086
|
|
|
Other
businesses (a) (b) |
|
|
|
|
(
240
) |
|
|
(
319
) |
|
|
(
139
) |
|
|
Unallocated
transactions (c) |
|
|
|
|
8
|
|
|
3
|
|
|
2
|
|
|
Impact
of purchase accounting (d) |
|
|
|
|
(
44) |
|
|
(
67) |
|
|
(
144) |
|
|
Amortization
of intangibles |
|
|
|
|
(
970
) |
|
|
(
1,641) |
|
|
(
2,133) |
|
|
Transaction-related
expenses (e) |
|
|
|
|
(
22
) |
|
|
(
273
) |
|
|
(
124
) |
|
|
Stock-based
compensation expense (f) |
|
|
|
|
(
931
) |
|
|
(
808
) |
|
|
(
487
) |
|
|
Other
corporate expenses (g) |
|
|
|
|
(
899) |
|
|
(
337) |
|
|
(
376) |
|
|
Total
consolidated operating income |
|
|
|
|
$
|
5,771
|
|
|
$
|
4,659
|
|
|
$
|
3,685
|
|
____________________
(a)Other
businesses consists of (i) VMware Resale, (ii) Secureworks, and (iii) Virtustream, and do not meet
the requirements for a reportable segment, either individually or collectively.
(b)The
Company completed the sale of RSA Security on September 1, 2020, and the sale of Boomi on October 1,
2021. Prior to the divestitures, RSA Security and Boomi’s results were included within other
businesses. See Note 1 of the Notes to the Consolidated Financial Statements for further details
related to the divestitures of RSA Security and Boomi.
(c)Unallocated
transactions includes other corporate items that are not allocated to Dell Technologies’
reportable segments.
(d)Impact
of purchase accounting includes non-cash purchase accounting adjustments that are primarily related
to the EMC merger transaction that was completed in September 2016.
(e)Transaction-related
expenses includes acquisition, integration, and divestiture related costs, as well as the costs
incurred in the VMware Spin-off described in Note 1 and Note 3 of the Notes to the Consolidated
Financial Statements.
(f)Stock-based
compensation expense consists of equity awards granted based on the estimated fair value of those
awards at grant date.
(g)
Other corporate expenses includes impairment
charges, incentive charges related to equity investments, severance, facility action, payroll taxes
associated with stock-based compensation, and other costs.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents the disaggregation of net revenue by reportable segment, and by major
product categories within the segments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Net
revenue: |
|
|
|
|
|
|
|
|
|
|
Infrastructure
Solutions Group: |
|
|
|
|
|
|
|
|
|
|
Servers
and networking |
|
|
|
|
$
|
20,398
|
|
|
$
|
17,901
|
|
|
$
|
16,592
|
|
|
Storage
|
|
|
|
|
17,958
|
|
|
16,465
|
|
|
16,410
|
|
|
Total
ISG net revenue |
|
|
|
|
$
|
38,356
|
|
|
$
|
34,366
|
|
|
$
|
33,002
|
|
|
Client
Solutions Group: |
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
$
|
45,556
|
|
|
$
|
45,576
|
|
|
$
|
35,423
|
|
|
Consumer
|
|
|
|
|
12,657
|
|
|
15,888
|
|
|
12,964
|
|
|
Total
CSG net revenue |
|
|
|
|
$
|
58,213
|
|
|
$
|
61,464
|
|
|
$
|
48,387
|
|
The
following table presents net revenue allocated between the United States and foreign countries for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
(in
millions) |
| Net
revenue: |
|
|
|
|
|
| United
States |
$
|
49,201
|
|
|
$
|
46,752
|
|
|
$
|
42,009
|
|
| Foreign
countries |
53,100
|
|
|
54,445
|
|
|
44,661
|
|
|
Total
net revenue |
$
|
102,301
|
|
|
$
|
101,197
|
|
|
$
|
86,670
|
|
The
following table presents property, plant, and equipment, net allocated between the United States and
foreign countries as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
| Property,
plant, and equipment, net: |
|
|
|
|
United
States |
$
|
4,163
|
|
|
$
|
3,667
|
|
| Foreign
countries |
2,046
|
|
|
1,748
|
|
|
Total
property, plant, and equipment, net |
$
|
6,209
|
|
|
$
|
5,415
|
|
The allocation between domestic and foreign net
revenue is based on the location of the customers. Net revenue from any single foreign country did not
constitute more than 10% of the Company’s consolidated net revenue for any of the fiscal years
ended February 3, 2023, January 28, 2022, and January 29, 2021. As of February 3,
2023 and January 28, 2022, property, plant, and equipment, net primarily related to domestic
ownership. Within foreign countries, property, plant, and equipment, net of $0.7
billion was located in Ireland.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
20 — SUPPLEMENTAL CONSOLIDATED FINANCIAL
INFORMATION
The
following table presents additional information on selected assets included in the Consolidated
Statements of Financial Position as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
|
(in
millions) |
| Cash,
cash equivalents, and restricted cash: |
|
|
|
|
Cash
and cash equivalents |
$
|
8,607
|
|
|
$
|
9,477
|
|
|
Restricted
cash - other current assets (a) |
272
|
|
|
534
|
|
|
Restricted
cash - other non-current assets (a) |
15
|
|
|
71
|
|
|
Total
cash, cash equivalents, and restricted cash |
$
|
8,894
|
|
|
$
|
10,082
|
|
| Inventories,
net: |
|
|
|
|
Production
materials |
$
|
3,225
|
|
|
$
|
3,653
|
|
|
Work-in-process
|
708
|
|
|
855
|
|
|
Finished
goods |
843
|
|
|
1,390
|
|
|
Total
inventories, net |
$
|
4,776
|
|
|
$
|
5,898
|
|
| Prepaid
expenses: |
|
|
|
|
Total
prepaid expenses (b) |
$
|
641
|
|
|
$
|
886
|
|
| Deferred
Costs: |
|
|
|
|
Total
deferred costs, current (b) |
$
|
5,459
|
|
|
$
|
4,996
|
|
| Property,
plant, and equipment, net: |
|
|
|
|
Computer
equipment |
$
|
6,899
|
|
|
$
|
6,497
|
|
|
Land
and buildings |
3,059
|
|
|
3,095
|
|
|
Machinery
and other equipment |
3,134
|
|
|
2,714
|
|
|
Total
property, plant, and equipment |
13,092
|
|
|
12,306
|
|
|
Accumulated
depreciation and amortization (c) |
(
6,883)
|
|
|
(
6,891)
|
|
|
Total
property, plant, and equipment, net |
$
|
6,209
|
|
|
$
|
5,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
____________________
(a) Restricted
cash includes cash required to be held in escrow pursuant to DFS securitization arrangements.
(b) Deferred
costs and prepaid expenses are included in other current assets in the Consolidated Statements of
Financial Position. Amounts classified as long-term deferred costs are included in other non current
assets and are not disclosed above.
(c) During
the fiscal years ended February 3, 2023, January 28, 2022, and January 29, 2021, the
Company recognized $1.8
billion, $1.6
billion, and $1.3
billion, respectively, in depreciation expense.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Valuation
and Qualifying Accounts
The
provisions recognized on the Consolidated Statements of Income during the fiscal years presented are
based on assessments of the impact of current and expected future economic conditions. The duration and
severity of continued market volatility is highly uncertain and, as such, the impacts on expected credit
losses for trade receivables and financing receivables are subject to significant judgment and may cause
variability in the Company’s allowance for credit losses in future periods for trade receivables
and financing receivables.
The
following table presents the Company’s valuation and qualifying accounts for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Customer
Financing Receivables - Allowance for financing receivable losses: |
|
|
|
|
|
| Balance
at beginning of period |
$
|
189
|
|
|
$
|
321
|
|
|
$
|
149
|
|
|
Adjustment
for adoption of accounting standard |
—
|
|
|
—
|
|
|
111
|
|
|
Charge-offs,
net of recoveries |
(
60) |
|
|
(
72) |
|
|
(
91) |
|
|
Provision
charged to income statement |
72
|
|
|
(
60
) |
|
|
152
|
|
|
Balance
at end of period |
$
|
201
|
|
|
$
|
189
|
|
|
$
|
321
|
|
|
|
|
|
|
|
| Tax
Valuation Allowance: |
|
|
|
|
|
| Balance
at beginning of period |
$
|
1,423
|
|
|
$
|
1,297
|
|
|
$
|
1,313
|
|
|
Charged
to income tax provision |
84
|
|
|
155
|
|
|
41
|
|
|
Charged
to other accounts |
28
|
|
|
(
29) |
|
|
(
57) |
|
|
Balance
at end of period |
$
|
1,535
|
|
|
$
|
1,423
|
|
|
$
|
1,297
|
|
Warranty
Liability
The
following table presents changes in the Company’s liability for standard limited warranties
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Warranty
liability: |
|
|
|
|
|
|
|
|
|
| Warranty
liability at beginning of period |
|
|
|
|
$
|
480
|
|
|
$
|
473
|
|
|
$
|
496
|
|
|
Costs
accrued for new warranty contracts and changes in estimates for pre-existing warranties
(a) |
|
|
|
|
956
|
|
|
957
|
|
|
782
|
|
|
Service
obligations honored |
|
|
|
|
(
969
) |
|
|
(
950
) |
|
|
(
805
) |
|
| Warranty
liability at end of period |
|
|
|
|
$
|
467
|
|
|
$
|
480
|
|
|
$
|
473
|
|
|
Current
portion |
|
|
|
|
$
|
324
|
|
|
$
|
353
|
|
|
$
|
356
|
|
|
Non-current
portion |
|
|
|
|
$
|
143
|
|
|
$
|
127
|
|
|
$
|
117
|
|
____________________
(a)
Changes in cost estimates related to
pre-existing warranties are aggregated with accruals for new standard warranty contracts. The
Company’s warranty liability process does not differentiate between estimates made for
pre-existing warranties and those made for new warranty obligations.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Severance
Charges
The
Company incurs costs related to employee severance and records a liability for these costs when it is
probable that employees will be entitled to termination benefits and the amounts can be reasonably
estimated. The liability related to these actions is included in accrued and other current liabilities
in the Consolidated Statements of Financial Position.
On
February 6, 2023, subsequent to close of the fiscal year ended February 3, 2023, the Company
announced to its employees reorganizations and actions to align its investments more closely with its
previously discussed strategic and customer priorities. These actions will reduce the Company’s
workforce by approximately 5% as the Company continues to take prudent steps in light of a
challenging global economic environment. The Company recognized $367
million of expense associated with these actions in the fourth quarter of the
fiscal year ended February 3, 2023.
The
following table presents the activity related to the Company’s severance liability for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Severance
liability: |
|
|
|
|
|
|
|
|
|
| Severance
liability at beginning of period |
|
|
|
|
$
|
74
|
|
|
$
|
109
|
|
|
$
|
117
|
|
|
Severance
charges |
|
|
|
|
527
|
|
|
134
|
|
|
368
|
|
|
Cash
paid and other |
|
|
|
|
(
193
) |
|
|
(
169
) |
|
|
(
376
) |
|
| Severance
liability at end of period |
|
|
|
|
$
|
408
|
|
|
$
|
74
|
|
|
$
|
109
|
|
The
following table presents severance charges as included in the Consolidated Statements of Income for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
(in
millions) |
| Severance
charges: |
|
|
|
|
|
|
Cost
of net revenue |
$
|
108
|
|
|
$
|
29
|
|
|
$
|
58
|
|
|
Selling,
general, and administrative |
363
|
|
|
98
|
|
|
262
|
|
|
Research
and development |
56
|
|
|
7
|
|
|
48
|
|
|
Total
severance charges |
$
|
527
|
|
|
$
|
134
|
|
|
$
|
368
|
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Interest
and other, net
The
following table presents information regarding interest and other, net for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Interest
and other, net: |
|
|
|
|
|
|
|
|
|
|
Investment
income, primarily interest |
|
|
|
|
$
|
100
|
|
|
$
|
42
|
|
|
$
|
47
|
|
|
Gain
(loss) on investments, net |
|
|
|
|
(
206
) |
|
|
569
|
|
|
425
|
|
|
Interest
expense |
|
|
|
|
(
1,222) |
|
|
(
1,542) |
|
|
(
2,052) |
|
|
Foreign
exchange |
|
|
|
|
(
265) |
|
|
(
221) |
|
|
(
160) |
|
|
Gain
on disposition of businesses and assets |
|
|
|
|
—
|
|
|
3,968
|
|
|
458
|
|
|
Debt
extinguishment fees |
|
|
|
|
—
|
|
|
(
1,572) |
|
|
(
158
) |
|
|
Legal
settlement, net |
|
|
|
|
(
894
) |
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
|
|
(
59
) |
|
|
20
|
|
|
101
|
|
|
Total
interest and other, net |
|
|
|
|
$
|
(
2,546) |
|
|
$
|
1,264
|
|
|
$
|
(
1,339) |
|
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
21 — RELATED PARTY TRANSACTIONS
VMware
is considered to be a related party of the Company as a result of Michael Dell’s ownership
interests in both Dell Technologies and VMware as well as Mr. Dell’s continued service as Chairman
and Chief Executive Officer of Dell Technologies and as Chairman of the Board of VMware, Inc. See Note 1
and Note 3 of the Notes to the Consolidated Financial Statements for more information about the VMware
Spin-off.
The
information provided below includes a summary of transactions with VMware. Transactions with related
parties other than VMware during the periods presented were immaterial, individually and in
aggregate.
Transactions
with VMware
Dell
Technologies and VMware engage in the following ongoing related party transactions:
•Pursuant
to original equipment manufacturer and reseller arrangements, Dell Technologies integrates or bundles
VMware’s products and services with Dell Technologies’ products and sells them to end-users.
Dell Technologies also acts as a distributor, purchasing VMware’s standalone products and services
for resale to end-user customers. Where applicable, costs under these arrangements are presented net of
rebates received by Dell Technologies.
•Dell
Technologies procures products and services from VMware for its internal use. For the fiscal years ended
February 3, 2023, January 28, 2022, and January 29, 2021, costs incurred associated with
products and services purchased from VMware for internal use were immaterial.
•Dell
Technologies sells and leases products and sells services to VMware. For the fiscal years ended
February 3, 2023, January 28, 2022, and January 29, 2021, revenue recognized from sales
of services to VMware was immaterial.
•DFS
provides financing to certain VMware end-users. Upon acceptance of the financing arrangement by both
VMware’s end-users and DFS, DFS recognizes amounts due to related parties on the Consolidated
Statements of Financial Position. Associated financing fees are recorded to product net revenue on the
Consolidated Statements of Income and are reflected within sales and leases of products to VMware in the
table below.
•Dell
Technologies and VMware also enter into joint marketing, sales, and branding arrangements, for which
both parties may incur costs. For the fiscal years ended February 3, 2023, January 28, 2022,
and January 29, 2021, consideration received from VMware for joint marketing, sales, and branding
arrangements was immaterial.
•Dell
Technologies and VMware entered into a transition services agreement in connection with the VMware
Spin-off to provide various support services, including investment advisory services, certain support
services from Dell Technologies personnel, and other transitional services. Costs associated with this
agreement were immaterial for the fiscal years ended February 3, 2023 and January 28, 2022.
Activities under the agreement concluded during the fiscal year ended February 3, 2023.
•Prior
to the completion of the VMware Spin-off, Dell Technologies provided support services and support from
Dell Technologies personnel to VMware in certain geographic regions where VMware did not have an
established legal entity. These employees were managed by VMware, but Dell Technologies incurred the
costs for these such services. The costs incurred by Dell Technologies on VMware’s behalf to these
employees were charged to VMware. For the fiscal years ended January 28, 2022 and January 29,
2021, costs associated with such seconded employees were immaterial. Remaining activity related to
seconded employees occurring after the completion of the VMware Spin-off was governed by the transition
services agreement discussed above.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table presents information about the impact of Dell Technologies’ related party
transactions with VMware on the Consolidated Statements of Income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended |
|
Classification
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
January
29, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
| Sales
and leases of products to VMware |
Net
revenue - products |
|
|
|
|
|
$
|
154
|
|
|
$
|
188
|
|
|
$
|
166
|
|
| Purchase
of VMware products for resale |
Cost
of net revenue - products |
|
|
|
|
|
$
|
1,634
|
|
|
$
|
1,577
|
|
|
$
|
1,493
|
|
| Purchase
of VMware services for resale |
Cost
of net revenue - services |
|
|
|
|
|
$
|
3,065
|
|
|
$
|
2,487
|
|
|
$
|
1,848
|
|
The
following table presents information about the impact of Dell Technologies’ related party
transactions with VMware on the Consolidated Statements of Financial Position as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
|
|
|
|
(in
millions) |
| Deferred
costs related to VMware products and services for resale |
Other
current assets |
|
$
|
3,000
|
|
|
$
|
2,571
|
|
| Deferred
costs related to VMware products and services for resale |
Other
non-current assets |
|
$
|
2,537
|
|
|
$
|
2,311
|
|
Due
To/From Related Party
The
following table presents amounts due to and from VMware as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2023 |
|
January
28, 2022 |
|
|
|
|
|
(in
millions) |
| Due
from related party, net, current (a) |
$
|
378
|
|
|
$
|
131
|
|
| Due
from related party, net, non-current (b) |
$
|
440
|
|
|
$
|
710
|
|
| Due
to related party, current (c) |
$
|
2,067
|
|
|
$
|
1,414
|
|
____________________
(a) Amounts
due from related party, net, current consists of amounts due from VMware, inclusive of current net
tax receivables from VMware under the Tax Agreements described below. Amounts, excluding tax, are
generally settled in cash within 60 days of each quarter-end.
(b)
Amounts due from related party, net, non-current consists of non-current portion of net receivables
from VMware under the Tax Agreements.
(c)
Amounts due to related party, current includes amounts due to VMware, which are generally settled in
cash within 60 days of each quarter-end.
Related
Party Tax Matters
Tax
Agreements
— In connection with the VMware Spin-off and concurrently with the execution of the Separation and
Distribution Agreement, effective as of April 14, 2021, Dell Technologies and VMware entered into a Tax
Matters Agreement (the “Tax Matters Agreement”) and agreed to terminate the tax sharing
agreement as amended on December 30, 2019 (together with the Tax Matters Agreement, the “Tax
Agreements”). The Tax Matters Agreement governs Dell Technologies’ and VMware’s
respective rights and obligations, both for pre-spin-off periods and post-spin-off periods, regarding
income and other taxes, and related matters, including tax liabilities and benefits, attributes, and
returns.
The
timing of the tax payments due to and from related parties is governed by the Tax Agreements.
VMware’s portion of the mandatory one-time transition tax on accumulated earnings of foreign
subsidiaries (the “Transition Tax”) is governed by a letter agreement between VMware and
Dell Technologies entered into on April 1, 2019.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net
receipts from VMware pursuant to the Tax Agreements were
immaterial
during the fiscal years ended February 3, 2023 and January 28, 2022, and $
307
million during the fiscal year ended January 29, 2021, and primarily related
to VMware’s portion of the Transition Tax, federal income taxes on Dell Technologies’
consolidated tax return, and state tax payments for combined states.
As
a result of the activity under the Tax Agreements with VMware, amounts due from VMware were $
599
million and $621
million as of February 3, 2023 and January 28, 2022, respectively,
primarily related to VMware’s estimated tax obligation resulting from the Transition Tax. The 2017
Tax Cuts and Jobs Act included a deferral election for an eight-year installment payment method on the
Transition Tax. Dell Technologies expects VMware to pay the remainder of its Transition Tax over a
period of three years
.
Indemnification
— Upon consummation of the VMware Spin-off, Dell Technologies recorded net income tax
indemnification receivables from VMware related to certain income tax liabilities for which Dell
Technologies is jointly and severally liable, but for which it is indemnified by VMware under the Tax
Matters Agreement. The amounts that VMware may be obligated to pay Dell Technologies could vary
depending on the outcome of certain unresolved tax matters, which may not be resolved for several years.
The net receivable as of February 3, 2023 and January 28, 2022 was $146
million and $144
million, respectively.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
22 — GOVERNMENT ASSISTANCE
The
Company receives government assistance in the form of grants and incentives which vary in size,
duration, and conditions from various domestic and international governing bodies and related entities.
For government assistance in which no specific US GAAP applies, the Company accounts for such
transactions as a gain contingency and by analogy to a grant model. Under such model, the Company
recognizes the impact of the government assistance on the Consolidated Statements of Income upon
reaching reasonable assurance that the Company will comply with the conditions of the assistance and
that the grant will be received. The Company classifies the impact of government assistance on the
Consolidated Statements of Income based on the underlying nature and purpose of the assistance.
During
the fiscal year ended February 3, 2023, government assistance received primarily consisted of the
following:
The
Company received assistance from foreign governmental entities designed, in part, to promote competitive
pricing by providing companies with an offset to local sales taxes incurred on the sales of products to
customers. The assistance received is broadly available to companies. To qualify for this assistance,
companies are required to invest a portion of local revenue, derived from goods manufactured locally,
into research and development activities. The incentives in place are currently set to expire at various
dates through 2029. Such expirations could be impacted by future legislation. During the fiscal year
ended February 3, 2023, the Company recognized $297
million within net revenue on the
Consolidated Statements of Income related to such assistance.
The
Company received incentives from foreign governmental entities to provide reimbursement for various
costs incurred that are directly tied to the production or delivery of offerings sold to customers. The
agreements governing such assistance require that the Company comply with certain conditions including,
but not limited to, the achievement of future operational targets. These agreements currently expire at
various dates through 2029. During the fiscal year ended February 3, 2023, the Company recognized a
benefit of $318
million to cost of net revenue on the
Consolidated Statements of Income related to such assistance.
DELL
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE
23 — SUBSEQUENT EVENTS
There were no known events occurring after
February 3, 2023 and up until the date of issuance of this report that would materially affect the
information presented herein.
ITEM 9 —
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A —
CONTROLS AND PROCEDURES
This
report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by
Rule 13a-14 under the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1
and 31.2 filed with this report. This Item 9A includes information concerning the controls and control
evaluations referred to in those certifications.
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are
designed to provide reasonable assurance that information required to be disclosed in reports filed or
submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in SEC rules and forms and that such information is accumulated and communicated to management,
including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosures.
In
connection with the preparation of this report, our management, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures as of February 3,
2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures were effective at the reasonable assurance level as of
February 3, 2023.
Management’s
Annual Report on Internal Control Over Financial Reporting
Management,
under the supervision of the Chief Executive Officer and the Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes those policies and procedures which
(a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets, (b) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, (c) provide reasonable assurance that receipts and expenditures are being made only
in accordance with appropriate authorization of management and the board of directors, and (d) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of assets that could have a material effect on the financial statements.
In
connection with the preparation of this report, our management, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of our internal control over financial reporting as of February 3, 2023, based on
the criteria established in Internal
Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of that
evaluation, management has concluded that our internal control over financial reporting was effective as
of February 3, 2023.
The
effectiveness of our internal control over financial reporting as of February 3, 2023 has been
audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their
report, which is included in “Item 8 — Financial Statements and Supplementary
Data.”
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting during the fiscal quarter ended
February 3, 2023 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Limitations
on the Effectiveness of Controls
Our
system of controls is designed to provide reasonable, not absolute, assurance regarding the reliability and
integrity of accounting and financial reporting. Management does not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent or detect all errors and all fraud.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system will be met. These inherent limitations include the
following:
•Judgments
in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or
mistakes.
•Controls
can be circumvented by individuals, acting alone or in collusion with each other, or by management
override.
•The
design of any system of controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions.
•Over
time, controls may become inadequate because of changes in conditions or deterioration in the degree of
compliance with associated policies or procedures.
•The
design of a control system must reflect the fact that resources are constrained, and the benefits of
controls must be considered relative to their costs.
ITEM
9B — OTHER INFORMATION
None.
ITEM
9C — DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not
applicable.
PART
III
ITEM
10 — DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
We
have adopted a code of ethics applicable to our principal executive officer and our other senior financial
officers. The code of ethics, which we refer to as our Code of Ethics for Senior Financial Officers, is
available on the Investor Relations page of our website at www.delltechnologies.com. To the extent required
by SEC rules, we intend to disclose any amendments to this code and any waiver of a provision of the code
for the benefit of any senior financial officers on our website within any period that may be required under
SEC rules from time to time.
See
“Part I — Item 1 — Business — Information about our Executive Officers” for
more information about our executive officers, which is incorporated by reference in this Item 10. Other
information required by this Item 10 is incorporated herein by reference to our definitive proxy statement
for our 2023 annual meeting of stockholders, referred to as the “2023 proxy statement,” which we
will file with the SEC on or before 120 days after our 2023 fiscal year-end, and which will appear in the
2023 proxy statement under the captions “Proposal 1 — Election of Directors” and
“Additional Information — Delinquent Section 16(a) Reports,” if applicable.
The
following information about the members of our Board of Directors and the principal occupation or employment
of each director is provided as of the date of this report.
|
|
|
|
|
|
|
Michael
S. Dell
Chairman
and Chief Executive Officer
Dell
Technologies Inc.
|
Lynn
Vojvodich Radakovich
Public
Company Director
|
|
|
|
David
W. Dorman
Founding
Partner
Centerview
Capital Technology
(investments)
|
Ellen
J. Kullman
Public
Company Director
|
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|
|
Egon
Durban
Co-CEO
Silver
Lake
(private
equity)
|
Simon
Patterson
Managing
Director
Silver
Lake
(private
equity)
|
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|
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William
D. Green
Public
Company Director
|
David
Grain Founder and CEO Grain Management (private equity) |
ITEM
11 — EXECUTIVE COMPENSATION
Information
required by this Item 11 is incorporated herein by reference to the 2023 proxy statement,
including the information in the 2023 proxy statement appearing under the captions
“Proposal 1 — Election of Directors — Director Compensation” and
“Compensation of Executive Officers.”
ITEM
12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information
required by this Item 12 is incorporated herein by reference to the 2023 proxy statement,
including the information in the 2023 proxy statement appearing under the captions “Equity
Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and
Management.”
ITEM
13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information
required by this Item 13 is incorporated herein by reference to the 2023 proxy statement,
including the information in the 2023 proxy statement appearing under the captions
“Proposal 1 — Elections of Directors” and “Transactions with Related
Persons.”
ITEM 14 —
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information
required by this Item 14 is incorporated herein by reference to the 2023 proxy statement,
including the information in the 2023 proxy statement appearing under the caption
“Proposal 2 — Ratification of Appointment of Independent Registered Public Accounting
Firm.”
PART
IV
ITEM
15 — EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
The
following documents are filed as part of this Annual Report on Form 10-K:
(1)
Financial
Statements:
The following financial statements are filed as part of this report under “Part II — Item 8
— Financial Statements and Supplementary Data”:
Consolidated
Financial Statements:
Report
of Independent Registered Public Accounting Firm
Consolidated
Statements of Financial Position at February 3, 2023 and January 28, 2022
Consolidated
Statements of Income for the fiscal years ended February 3, 2023, January 28, 2022, and
January 29, 2021
Consolidated
Statements of Comprehensive Income for the fiscal years ended February 3, 2023, January 28, 2022,
and January 29, 2021
Consolidated
Statements of Cash Flows for the fiscal years ended February 3, 2023, January 28, 2022, and
January 29, 2021
Consolidated
Statements of Stockholders’ Equity (Deficit) for the fiscal years ended February 3, 2023,
January 28, 2022, and January 29, 2021
Notes
to Consolidated Financial Statements
(2) Financial
Statement Schedules: The
information required in the following financial statement schedules is included in Note 20 of the Notes to
the Consolidated Financial Statements under “Part II — Item 8 — Financial Statements and
Supplementary Data”:
Schedule
II — Valuation and Qualifying Accounts
All
other schedules have been omitted because they are not applicable or the required information is otherwise
included in the Consolidated Financial Statements or Notes thereto.
Exhibits:
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Exhibit Number
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Description
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2019
Notes Supplemental Indenture No. 2, 2021 Notes Supplemental Indenture No. 2, 2023 Notes
Supplemental Indenture No. 2, 2026 Notes Supplemental Indenture No. 2, 2036 Notes
Supplemental Indenture No. 2 and 2046 Notes Supplemental Indenture No. 2, dated as of
September 7, 2016, by and among Dell International L.L.C., EMC Corporation, New Dell
International LLC and The Bank of New York Mellon Trust Company, N.A., as trustee and
collateral agent (incorporated by reference to Exhibit 4.2 to the Company’s
Current Report on Form 8-K filed with the Commission on September 9, 2016) (Commission
File No. 001-37867).
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2019
Notes Supplemental Indenture No. 3, 2021 Notes Supplemental Indenture No. 3, 2023 Notes
Supplemental Indenture No. 3, 2026 Notes Supplemental Indenture No. 3, 2036 Notes
Supplemental Indenture No. 3 and 2046 Notes Supplemental Indenture No. 3, dated as of
September 7, 2016, by and among Dell International L.L.C., EMC Corporation, Dell
Technologies Inc., Denali Intermediate Inc., Dell Inc., the other guarantors named
therein and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral
agent (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on
Form 8-K filed with the Commission on September 9, 2016) (Commission File No.
001-37867).
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2019
Notes Supplemental Indenture No. 4, 2021 Notes Supplemental Indenture No. 4, 2023 Notes
Supplemental Indenture No. 4, 2026 Notes Supplemental Indenture No. 4, 2036 Notes
Supplemental Indenture No. 4 and 2046 Notes Supplemental Indenture No. 4, dated as of
May 23, 2017, by and among Dell International L.L.C., EMC Corporation, Dell Global
Holdings XIII L.L.C., QTZ L.L.C. and The Bank of New York Mellon Trust Company, N.A., as
Trustee and Collateral Agent (incorporated by reference to Exhibit 4.32 to the
Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2019)
(Commission File No. 001-37867).
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Registration
Rights Agreement, dated as of December 13, 2021, among Dell International L.L.C., EMC
Corporation, the guarantors party thereto and BofA Securities, Inc., Barclays Capital
Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, J.P. Morgan
Securities LLC and Wells Fargo Securities LLC, as the representatives for the initial
purchasers. (incorporated by reference to Exhibit 4.4 to the Company’s Current
Report on Form 8-K filed with the Commission on December 15, 2021) (Commission File No.
001-37867).
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Second
Amended and Restated Registration Rights Agreement, dated as of December 25, 2018, by
and among the Company, Michael S. Dell, Susan Lieberman Dell Separate Property Trust,
MSDC Denali Investors, L.P., MSDC Denali EIV, LLC, Silver Lake Partners III, L.P.,
Silver Lake Technology Investors III, L.P., Silver Lake Partners IV, L.P., Silver Lake
Technology Investors IV, L.P., SLP Denali Co-Invest, L.P., Venezio Investments Pte. Ltd.
and the Management Stockholders party thereto (incorporated by reference to Exhibit 10.4
to the Company’s Current Report on Form 8-K filed with the Commission on December
28, 2018) (Commission File No. 001-37867).
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Amendment
No. 1 to Second Amended and Restated Registration Rights Agreement, dated as of May 27,
2019, among Dell Technologies Inc., Michael S. Dell, Susan Lieberman Dell Separate
Property Trust, MSDC Denali Investors, L.P., MSDC Denali EIV, LLC, SL SPV-2, L.P.,
Silver Lake Partners IV, L.P., Silver Lake Technology Investors IV, L.P., Silver Lake
Partners V DE (AIV), L.P., Silver Lake Technology Investors V, L.P., SLP Denali
Co-Invest, L.P. and Venezio Investments Pte. Ltd. (incorporated by reference to Exhibit
4.40 to the Company’s Annual Report on Form 10-K for the fiscal year ended January
31, 2020) (Commission File No. 001-37867).
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Amendment
No. 2 to the Second Amended and Restated Registration Rights Agreement, dated as of
April 15, 2020, among Dell Technologies Inc., Michael S. Dell and Susan Lieberman Dell
Separate Property Trust, SL SPV-2 L.P., Silver Lake Partners IV, L.P., Silver Lake
Technology Investors IV, L.P., Silver Lake Partners V DE (AIV), L.P., Silver Lake
Technology Investors V, L.P. and Venezio Investments Pte. Ltd. (incorporated by
reference to Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended May 1, 2020) (Commission File No. 001-37867).
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Amendment
No. 3 to the Second Amended and Restated Registration Rights Agreement, dated as of
September 15, 2020, among Dell Technologies Inc., Michael S. Dell and Susan Lieberman
Dell Separate Property Trust, SL SPV-2 L.P., Silver Lake Partners IV, L.P., Silver Lake
Technology Investors IV, L.P., Silver Lake Partners V DE (AIV), L.P., Silver Lake
Technology Investors V, L.P. and Venezio Investments Pte. Ltd. (incorporated by
reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended October 30, 2020) (Commission File No. 001-37867).
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Consent
to the Extension of Registration Rights Under the Second Amended and Restated
Registration Rights Agreement, dated January 3, 2022, among Dell Technologies Inc. and
SL SPV-2 L.P., Silver Lake Partners IV, L.P., Silver Lake Technology Investors IV, L.P.,
Silver Lake Partners V DE (AIV), L.P., Silver Lake Technology Investors V, L.P.
(incorporated by reference to Exhibit 4.33 to the Company’s Annual Report on Form
10-K for the fiscal year ended January 28, 2022) (Commission File No.
001-37867).
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Consent
to the Extension of Registration Rights Under the Second Amended and Restated
Registration Rights Agreement, dated March 31, 2022, among Dell Technologies Inc.
and SL SPV-2 L.P., Silver Lake Partners IV, L.P., Silver Lake Technology Investors IV,
L.P., Silver Lake Partners V DE (AIV), L.P., Silver Lake Technology Investors V, L.P.
(incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended April 29, 2022) (Commission File No.
001-37867).
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Consent
to the Extension of Registration Rights Under the Second Amended and Restated
Registration Rights Agreement, dated June 28, 2022, among Dell Technologies Inc. and
SL SPV-2 L.P., Silver Lake Partners IV, L.P., Silver Lake Technology Investors IV, L.P.,
Silver Lake Partners V DE (AIV), L.P., Silver Lake Technology Investors V, L.P.
(incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended July 29, 2022) (Commission File No.
001-37867).
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Consent
to the Extension of Registration Rights Under the Second Amended and Restated
Registration Rights Agreement, dated September 22, 2022, among Dell Technologies
Inc.
and SL SPV-2 L.P., Silver Lake Partners IV, L.P., Silver Lake Technology Investors IV,
L.P., Silver Lake Partners V DE (AIV), L.P., Silver Lake Technology Investors V, L.P.
(incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended October 28, 2022) (Commission File No.
001-37867).
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Consent to the Extension of Registration Rights Under the
Second Amended and Restated Registration Rights Agreement, dated January 18, 2023, among
Dell Technologies Inc. and SL SPV-2 L.P., Silver Lake Partners IV, L.P., Silver
Lake Technology Investors IV, L.P., Silver Lake Partners V DE (AIV), L.P., Silver Lake
Technology Investors V, L.P.
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MD
Stockholders Agreement, dated as of December 25, 2018, by and among the Company, Denali
Intermediate Inc., Dell Inc., EMC Corporation, Denali Finance Corp., Dell International
L.L.C., Michael S. Dell and the Susan Lieberman Dell Separate Property Trust
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed with the Commission on December 28, 2018) (Commission File No.
001-37867).
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SLP
Stockholders Agreement, dated as of December 25, 2018, by and among the Company, Denali
Intermediate Inc., Dell Inc., EMC Corporation, Denali Finance Corp., Dell International
L.L.C., Silver Lake Partners III, L.P., Silver Lake Technology Investors III, L.P.,
Silver Lake Partners IV, L.P., Silver Lake Technology Investors IV, L.P. and SLP Denali
Co-Invest, L.P. and the other stockholders named therein (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission
on December 28, 2018) (Commission File No. 001-37867).
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Second
Amended and Restated Management Stockholders Agreement, dated as of December 25, 2018,
by and among the Company, Michael S. Dell, Susan Lieberman Dell Separate Property Trust,
Silver Lake Partners III, L.P., Silver Lake Technology Investors III, L.P., Silver Lake
Partners IV, L.P., Silver Lake Technology Investors IV, L.P., SLP Denali Co-Invest, L.P.
and the Management Stockholders (as defined therein) (incorporated by reference to
Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Commission
on December 28, 2018) (Commission File No. 001-37867).
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Amended
and Restated Class C Stockholders Agreement, dated as of December 25, 2018, by and among
the Company, Michael S. Dell, Susan Lieberman Dell Separate Property Trust, Silver Lake
Partners III, L.P., Silver Lake Partners IV, L.P., Silver Lake Technology Investors III,
L.P., Silver Lake Technology Investors IV, L.P., SLP Denali Co-Invest, L.P. and Venezio
Investments Pte. Ltd. (incorporated by reference to Exhibit 10.6 to the Company’s
Current Report on Form 8-K filed with the Commission on December 28, 2018)
(Commission File No. 001-37867).
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Second
Amended and Restated Class A Stockholders Agreement, dated as of December 25, 2018,
by and among the Company, Michael S. Dell, Susan Lieberman Dell Separate Property Trust,
Silver Lake Partners III, L.P., Silver Lake Partners IV, L.P., Silver Lake Technology
Investors III, L.P., Silver Lake Technology Investors IV, L.P., SLP
Denali Co-Invest, L.P. and the New Class A Stockholders party thereto
(incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form
8-K filed with the Commission on December 28, 2018) (Commission File No.
001-37867).
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Credit
Agreement, dated as of November 1, 2021, among Dell Technologies Inc., Denali
Intermediate Inc., Dell Inc., Dell International L.L.C., as a borrower, EMC Corporation,
as a borrower, JPMorgan Chase Bank, N.A., as administrative agent, and each of the
lenders and other parties from time to time party thereto (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission
on November 1, 2021) (Commission File No. 001-37867).
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First Amendment to the Credit Agreement, dated as of
February 8, 2022, among Dell Technologies Inc., Denali Intermediate Inc., Dell Inc.,
Dell International L.L.C., as a borrower, EMC Corporation, as a borrower, JPMorgan Chase
Bank, N.A., as administrative agent, and each of the lenders and other parties from time
to time party thereto.
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Second Amendment to the Credit Agreement, dated as of
November 10, 2022, among Dell Technologies Inc., Denali Intermediate Inc., Dell Inc.,
Dell International L.L.C., as a borrower, EMC Corporation, as a borrower, JPMorgan Chase
Bank, N.A., as administrative agent, and each of the lenders and other parties from time
to time party thereto.
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| 101
.INS† |
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XBRL
Instance Document - the instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document. |
| 101
.SCH† |
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Inline
XBRL Taxonomy Extension Schema Document. |
| 101
.CAL†† |
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Inline
XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101
.DEF† |
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Inline
XBRL Taxonomy Extension Definition Linkbase Document. |
| 101
.LAB† |
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Inline
XBRL Taxonomy Extension Label Linkbase Document. |
| 101
.PRE† |
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Inline
XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104
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Cover
Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL
document (included in Exhibit 101). |
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*
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Management
contracts or compensation plans or arrangements in which directors or executive officers
participate. |
| †
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Filed
with this report. |
| ††
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Furnished
with this report. |
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Pursuant
to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the rights of
holders of certain long-term debt of the Company and its subsidiaries are not filed. The Company
agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each
instrument with respect to issuances of such long-term debt. |
ITEM
16 — FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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DELL
TECHNOLOGIES INC. |
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By:
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/s/
MICHAEL S. DELL |
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Michael
S. Dell |
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Chairman
and Chief Executive Officer |
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(Duly
Authorized Officer) |
Date:
March 30, 2023
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated as of March 30,
2023:
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| Signature
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Title
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/s/
MICHAEL S. DELL
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Chairman
and Chief Executive Officer |
| Michael
S. Dell |
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(principal
executive officer) |
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/s/
DAVID W. DORMAN
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Director
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| David
W. Dorman |
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/s/
EGON DURBAN
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Director
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| Egon
Durban |
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/s/
DAVID GRAIN
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Director
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| David
Grain |
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/s/
WILLIAM D. GREEN
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Director
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| William
D. Green |
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/s/
ELLEN J. KULLMAN
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Director
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| Ellen
J. Kullman |
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/s/
SIMON PATTERSON
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Director
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| Simon
Patterson |
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/s/
LYNN VOJVODICH RADAKOVICH
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Director
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| Lynn
Vojvodich Radakovich |
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/s/
THOMAS W. SWEET
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Executive
Vice President and Chief Financial Officer |
| Thomas
W. Sweet |
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(principal
financial officer) |
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/s/
BRUNILDA RIOS
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Senior
Vice President, Corporate Finance and |
| Brunilda
Rios |
|
Chief
Accounting Officer |
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(principal
accounting officer) |